employment. at the same time as the post - crisis deleveraging may have weakened the effect of policy rate cuts, advanced economies are facing structural changes that influence the long - term growth picture. it is likely that the level of interest rates that would have a neutral effect on the economy has fallen. the global economy has never before, in recent history, been through such a long period of interest rates as low as they are now. the interest rate level worldwide was already falling long before the financial crisis erupted. behind the decline is a downward trend in real interest rates that can be attributed to a number of structural developments. lowering policy rates is a response to these developments. for several decades towards the end of the twentieth century, growth in the labour force and higher levels of education boosted economic growth. growth was accompanied by high returns and considerably higher real interest rates than observed in recent years. carstens, a. ( 2015 ) : “ challenges for emerging economies in the face of unconventional policies in advanced economies ” ( speech given on 20 april 2015 ), bank of mexico. rajan, r. ( 2015 ) : “ going bust for growth ” ( speech given 19 may 2015 ), bank of india. bis central bankers ’ speeches growth impulses have gradually become weaker. productivity growth has declined. the labour force is growing more slowly in many countries. at the same time, other structural changes are providing the motivation to save more : population aging and rising income inequality. in sum, these factors have contributed to lower real interest rates, even when economies have been in balance. following the financial crisis, interest rates have fallen even further. economies had been completely thrown off balance. nor was there much help to be obtained from other policy areas. the role of central banks has been to counteract an even deeper and more prolonged downturn. this is the challenge to which monetary policy has responded. chart : investment and consumption but there have been strong headwinds. we have had an illustration of the claim that downturns following financial crises are deeper and more persistent than other downturns. 12 as a result, the impact of monetary policy has been weaker than otherwise. enterprises, households and governments made use of ample capital and low interest rates in the precrisis years to debt finance consumption and investment. when the downturn occurred, there was a need for considerable deleveraging, while weak growth prospects have dampened the willingness to invest. in many countries, the downturn was further amplified as

central banks set the terms for banks ’ loans from and deposits with the central bank and control the size of banks ’ reserves. the objective of liquidity management is to keep short - term money market rates close to the key policy rate. chart : norges bank interest rates bis central bankers ’ speeches in norway, banks ’ reserves are managed using a quota system. deposits up to a specific quota are remunerated at the key policy rate, which is norges bank ’ s sight deposit rate. deposits that exceed the quota are remunerated at a rate below the key policy rate, referred to as the reserve rate. 1 banks that borrow overnight from norges bank pay the overnight lending ( d - loan ) rate. as shown in the chart, the reserve rate and the overnight lending rate are set respectively at 1 percentage point below and 1 percentage point above the key policy rate. 2 interbank transactions take place throughout the day. the transactions are settled via the banks ’ accounts with the central bank. banks with deposits above the quota at the end of the day normally lend reserves overnight to banks with a negative balance in norges bank or to banks that have deposits below the quota. chart : norges bank interest rates and market rate the interest rate on these transactions, called the overnight interbank rate ( nowa in norway ), is normally very close to the key policy rate. the interest rate corridor around the key policy rate is intended to promote reserve trading between banks and not between banks and the central bank. this contributes to an active interbank market and an efficient money market. in order to keep the overnight interbank rate close to the key policy rate, norges bank aims to keep banks ’ total reserves below the sum of the quotas that can be remunerated at the key policy rate. 3 while norges bank seeks to maintain the sum of the reserves in the banking system around nok 35 billion, the sum of banks ’ quotas is nok 45 billion, so that banks as a whole can always deposit the reserves outstanding in the banking system at the key policy rate. should the volume of reserves exceed the sum of banks ’ quotas, some banks would have to hold reserves at the reserve rate. that would push down the overnight interbank rate towards the reserve rate. but for that to occur, norges bank would have to stop withdrawing surplus liquidity through market operations. there are no plans to make such a change to our liquidity policy. the reserve rate in norway