øystein olsen : economic perspectives annual address by mr øystein olsen, governor of the norges bank ( central bank of norway ), to the supervisory council of norges bank and invited guests, oslo, 12 february 2015. * * * accompanying charts can be found at the end of the speech. an oil - driven economy it is no coincidence that the walls in this hall cover the monetary history of modern norway. the exhibit begins with the speciedaler from 1817 and continues up to the current banknote series. money is at the core of central banking. the central bank ’ s task is to ensure the availability of means of payment and to preserve trust in the value of money. low and stable inflation is the primary objective of monetary policy. people must also be assured that banknotes are genuine. it has become increasingly difficult to prevent the counterfeiting of banknotes. the current banknote series is due for replacement and work on a new series is well underway. the new banknotes are intended to function as a calling card for norway. the choice of the sea as the theme embraces both our past and present. we have always made good use of the opportunities the sea has provided. it has been our lifeblood, and it has been a main artery. fishing, shipping and trade have been a source of livelihood for many. with its changing face and magical power, it has also inspired artists. “ nothing is so boundless as the sea, nothing so patient. ” 1 so begins alexander kielland ’ s first novel. kielland, who was born and raised in stavanger, could scarcely suspect the inconceivable wealth the sea was so patiently concealing under the sea floor. the discovery of oil was the start of an amazing era for the norwegian economy. when the first oil was brought to the surface in 1971, income levels in norway were low compared with other western countries ( see chart 1 ). the picture has reversed since then. we have gradually caught up to the wealthiest nations. measured by gdp per capita, norway now ranks at the top ( see chart 2 ). the large revenues from the oil industry have been managed soundly. norway ’ s economy is in good order. well - functioning institutions and a high degree of trust between different groups in society provided a good starting point. at an early stage, it was established that the oil and gas resources belong to the norwegian people. the tax system and framework conditions for the petroleum industry were

. the policy rate increase is intended to prevent a rise in pressures in the economy that would trigger an acceleration in price and wage inflation. a higher interest rate also mitigates the risk of a renewed, rapid rise in property prices and debt. high price and wage inflation and a further build - up of financial imbalances would increase the risk of a sharp economic downturn further out. the plan is to move gradually to a more normal interest rate level. our assessment in march was that capacity utilisation was slightly above a normal level. at the same time, underlying inflation was a little higher than the inflation target of 2 percent. our projections implied that the policy rate would be raised in the course of the next half - year. there were also prospects that the policy rate would rise to 1. 75 percent by the end of 2022. this means that the average residential mortgage rate could increase from 2. 6 percent in march to 3. 5 percent in the course of the same period. we therefore believe that interest rates will not be as high as in previous upturns. with that path for the policy rate, inflation is projected to be close to target in the years ahead, at the same time as unemployment remains low. more persons employed and prospects of higher wage growth will contribute to lifting income. despite higher interest rates, there are prospects that most households will experience an improvement in purchasing power in the coming years. the risk outlook is dominated by global developments. over the past year, rising protectionism and political uncertainty have weighed on global growth. the uk ’ s relations with the eu have yet to be clarified. if trade tensions deepen, growth among trading partners may be lower than we projected in march. the uncertainty surrounding global developments and the effects of monetary policy suggests a cautious approach to interest rate setting. our most recent monetary policy meeting was held yesterday, and we published the decision earlier today. since the publication of our march projections, capacity utilisation appears to be rising as expected, while inflation has been a little higher than projected. global uncertainty persists. at its monetary policy meeting, the executive board decided to keep the policy rate unchanged at 1. 0 percent. the executive board ’ s current assessment of the outlook and balance of risks suggests that the policy rate will most likely be raised in june. our mission is to deliver low and stable inflation, while contributing to high and stable output and employment. should economic developments diverge from our current projections, the policy rate path