have been substantially lower this year than last year. there are a number of reasons why inflation has been low in an environment of high economic growth. first : norway ’ s terms of trade have improved. prices for export goods such as oil and gas, freight, fish, industrial commodities and engineering products have increased considerably. in addition, market growth abroad has provided market opportunities for norwegian export goods. at the same time, norwegian importers have been able to shift demand to new markets in central europe and asia, which has led to a fall in prices for many imported consumer goods. the terms of trade have improved by about 40 per cent since 2002. this has resulted in a vigorous rise in norway's disposable income. even excluding oil, there has been a marked improvement. second : an ample supply of labour has boosted output growth. in particular, the supply of foreign labour has increased sharply after eu enlargement in 2004. over the past two years, these labour inflows have accounted for over 30 per cent of growth in the labour force in norway. at the same time, this has enabled norwegian companies to be bolder in accepting new assignments and making investments, in the knowledge that they can procure labour throughout europe. high inward labour migration and the scope for relocating portions of production abroad have led to increased competition in the labour market and have probably curbed wage growth. third : the norwegian business sector has been quick to adopt new technology and to reap the benefits. in comparison with other countries, productivity gains in service sectors stand out in particular. on balance, these factors have contributed to the economy ’ s high capacity for growth. but strong activity growth has now resulted in a high level of capacity utilisation. shortages of labour and other factor inputs have been reported. this may curb growth in the norwegian economy and lead to higher wage and cost inflation. inflation is expected to pick up ahead. the upturn has also benefited the financial industry. strong economic expansion has pushed up an already high level of lending growth. as a result, total assets in norwegian banks and mortgage companies have risen sharply over the past decade. growth in lending to households has been high since 2000, but growth in corporate lending showed a sharp rise towards the end of 2005. profitability in the financial industry in norway has been high. what is the outlook ahead? will strong growth continue? the strong rate of growth we have witnessed in the past few years is not sustainable over time. capacity utilis

further light is being shed on the interaction between monetary policy and financial stability. inflation targeting in norway has become more flexible. at the same time, we cannot overburden monetary policy. in weighing the various considerations, we will in our “ liquidity in the foreign exchange market for eur / nok ”, kathrine lund, norges bank economic commentaries 3 / 2011. bis central bankers ’ speeches interest rate setting adhere to the primary objective of monetary policy – low and stable inflation. thank you for your attention. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches