##12 may, we decided to raise the key policy rate by 0. 25 percentage points to 2. 25 % to take into account the consideration of stabilising inflation and activity further ahead. chart : krone exchange rate – i - 44 the krone is strong, reflecting favourable prospects for the norwegian economy and high oil prices. when oil market conditions normalise, some of the krone appreciation can be expected to be reversed. norges bank does not operate with a target for the krone exchange rate, and the krone shows fairly wide fluctuations. with high growth in demand for goods and services and rising price and cost inflation, there is also a risk of a further appreciation of the krone. a strong krone dampens inflation through a subdued rise in prices for imported goods and services. persistent low inflation could curb the rise in the key policy rate. chart : price and cost levels relative to trading partners price and cost levels in norway relative to trading partners have weakened norway ’ s competitive position in recent years. so far this has not been an obstacle to solid growth and near - normal capacity utilisation in the norwegian economy, partly as a result of high prices for many of our exports. nevertheless, we should bear in mind that a high cost level makes us vulnerable, particularly in the event of any renewed downturn in the global economy. chart : oil price ( brent blend ) the norwegian economy emerged quickly and fairly painlessly from the global economic downturn partly owing to high prices for oil and other commodities. norway ’ s terms of trade have improved further. high commodity prices and strong growth in emerging economies are an advantage for both commodity - based industries and high - technology export firms. norwegian exports are increasing. unemployment is slightly lower than expected and it appears that wage growth in 2011 will be somewhat higher than envisaged in the march monetary policy report. norway has been fortunate, but effective systems for managing high revenues have probably also played a role. bis central bankers ’ speeches 2. a decade of inflation targeting chart : inflation a decade has passed since the inflation targeting regime was introduced. inflation has varied in this period, although less so than previously, and has generally been close to target. inflation expectations now seem to be firmly anchored. this shows that monetary policy has been effective. at the same time, over these ten years, we have gained insight into the functioning of the norwegian economy under an inflation targeting regime. inflation targeting is flexible, i. e. when setting the key policy

øystein olsen : the conduct of monetary policy introductory statement by mr øystein olsen, governor of norges bank ( central bank of norway ), at the hearing before the standing committee on finance and economic affairs of the storting ( norwegian parliament ), oslo, 20 may 2011. please note that the text below may differ from the actual presentation. the statement is based on norges bank ’ s annual report for 2010, monetary policy report 1 / 11 and the executive board ’ s assessments in the period to the monetary policy meeting on 12 may. * * * i would like to thank the chairman of the committee and also thank the committee for this opportunity to report on the conduct of monetary policy in connection with the storting ’ s deliberations on the government ’ s financial market report. my statement here today is based on the bank ’ s annual report, but also on the executive board ’ s assessments for the period to the most recent monetary policy meeting and new information. i also refer to this year ’ s report from norges bank watch, a group of experts that evaluates norges bank ’ s conduct of monetary policy. 1. activity in the norwegian economy has gained a firm footing the global financial crisis that unfolded in 2008 gave rise to the most severe economic downturn of our time. there was a dramatic decline in international trade, and in the following year world gdp decreased for the first time in generations. although global economic growth has recovered, the outlook remains uncertain. for a long time we have observed the increasing prominence of china and other emerging economies in the global economy. these countries also weathered the crisis well and have helped to restart economic growth in several western countries. however, the global trade imbalances that accumulated prior to the financial crisis are still present. several countries must sharply reduce public expenditure to bring rapidly rising government debt under control. this may have a dampening impact on growth ahead. high commodity prices could also depress activity. chart : consumer prices strong growth in demand for energy and commodities from emerging economies has led to a marked rise in the price of oil, grain and other commodities. in addition, unrest in north africa and the middle east has fuelled uncertainty concerning the supply of oil ahead. food and energy represent a large share of consumption in many countries and inflation has therefore picked up. nevertheless, in most advanced economies long - term inflation expectations are relatively stable and consumer price inflation is being dampened by low capacity utilisation and high unemployment.