not, there will be a number of possible interest rate paths that might be said to provide a reasonable balance in view of the uncertainty involved. the results of this trade - off are presented in the monetary policy report in the form of a chart that presents central projections for the interest rate, inflation and capacity utilisation in the economy. the formulation of a precise inflation target, our projection for the interest rate 3 - 4 years ahead and our desire to achieve a balance between output and inflation stability may perhaps give an impression of excessive optimism with respect to managing the economy and invite a repeat of earlier attempts to fine - tune the economy. but it is important to bear in mind the lessons drawn from the 1970s and 1980s, i. e. high stabilisation policy ambitions may lead to wide fluctuations in the economy, with high and variable inflation. in our conduct of monetary policy, we must not underestimate the uncertainty surrounding the decisions taken. even if norges bank publishes an interest rate forecast, this does not mean that the interest rate will follow this precise path throughout the projection period. forecasts of inflation, output, the interest rate and other variables are based on an assessment of the current situation and a perception of how the economy functions. disturbances to the economy may result in changes in the forecasts. data revisions imply that the current economic situation is not fully known. our ambition must be to reduce uncertainty with regard to our own response pattern. that actual interest rate developments will deviate somewhat from the bank's forecast will probably be the rule rather than the exception. what norges bank ’ s executive board actually adopts is a monetary policy strategy that applies until the next report. when monetary policy report 2 / 07 was presented in june, the executive board decided that the key policy rate should be in the interval 4½ - 5½ per cent in the period to the publication of the next report on 31 october. and even that is conditional on economic developments that are broadly in line with projections. financial market turbulence global economic developments are important for economic developments in norway, and changes in the growth prospects for the world economy may influence our projections. the turbulence in international financial markets in recent weeks has heightened the uncertainty concerning developments ahead. the source of the turbulence can be found in the us housing market and particularly in the subprime mortgage market. this segment of the us credit market has expanded sharply in recent years. the loans often feature an interest - only period and low interest rates in the first years

krone terms for imported consumer goods and services. second, exchange rate changes have an impact on competitiveness in norwegian business and industry and on market opportunities at home and abroad. this affects the level of activity in the economy and, in turn, price and cost developments. in the period between inflation report 3 / 06, presented in november 2006, and monetary policy report 1 / 07, presented in march this year, the krone appreciated more markedly than we had assumed. as a result, monetary policy report 1 / 07 was based on the assumption that the krone would be somewhat stronger throughout the projection period. the exchange rate assumption in inflation report 3 / 06 is shown by the broken blue line in the chart on the left, while the broken red line denotes the exchange rate assumption in monetary policy report 1 / 07. the isolated effect on the interest rate path of a stronger krone is illustrated in a box in monetary policy report 1 / 07. as shown in the chart on the right, the stronger krone pointed to a somewhat lower path for the interest rate. given the inflation target, we will be mindful of the effects of higher interest rates on the krone exchange rate when inflation is low. nonetheless, the interest rate path published in monetary policy report 1 / 07 was higher than in inflation report 3 / 06. the reason for this is that the prospect of stronger - than - expected growth in both norway and among our trading partners pointed to a higher interest rate path. on balance, this had a greater impact on the interest rate path than a stronger krone. over time, however, the nominal exchange rate is not the main force. the most important influence on competitiveness in norwegian business and industry and the purchasing power of the norwegian krone is changes in the real exchange rate. the real exchange rate can be measured in a number of ways, for example by consumer prices or labour costs in norway relative to our trading partners measured in a common currency. the real exchange rate has fluctuated widely over time and has deviated over longer periods considerably from the average level since 1970. the real exchange rate has nonetheless shown a tendency to revert to this level. over time, the exchange rate acts as a buffer in the global economy. when economic activity is high in one country, an appreciation of the country ’ s exchange rate will have a dampening effect. conversely, when there is a need to stimulate the economy, a weaker exchange rate will boost growth. over the past few years