exchange rate and in exchange rate expectations over time is dependent on stable inflation expectations, which in turn depend on low and stable inflation. evidence indicates that an inflation target provides a sound anchor for exchange rate expectations. however, these expectations will also depend on fundamental conditions such as developments in government expenditure and revenues, productivity growth, oil prices and the terms of trade, excluding oil. deterioration in competitiveness following several years of high wage growth high wage growth over several years has eroded the competitiveness of the norwegian business sector. last year, the effects of high wage growth were amplified by the changes in the krone exchange rate. although the nominal krone exchange rate has depreciated this year, the competitiveness of norwegian industries is still rather weak. the krone has now reverted to around the level prevailing in the mid - 1990s, while labour costs in manufacturing rose by 13 per cent5 more than among our trading partners in the same period. the developments in the krone exchange rate proved to be reversible, but the loss of competitiveness and jobs caused by relatively high wage growth in norway is difficult to recoup. a precondition for a considerable improvement in competitiveness is probably that real wage growth is lower than productivity growth in the business sector for a period. experience shows that this occurs in periods when there is excess capacity in the economy. this means that changes in competitiveness over time q. farooq akram ( 2003 ) : “ reelle likevektsvalutakurser for norge ” ( real equilibrium exchange rates for norway ) in norges bank ’ s occasional papers, no. 31 ( norwegian only ). wage figures for trading partners have been revised since the publication of “ report on monetary policy in 2003 – the first eight months ”. depend on real economic factors and on aspects of wage formation and cannot be controlled by monetary policy. however, with flexible inflation targeting, the social partners can normally expect low wage growth to have a greater impact on competitiveness because it can result in a weaker krone. in norges bank ’ s assessment, the outlook for the internationally exposed sector is brighter today than a year ago because the rise in costs has slowed markedly. as mentioned earlier, the decrease in wage growth has been of great importance in enabling us to reduce the key rate towards an international level. we expect inflation to pick up in the first half of 2004. output and employment will probably grow somewhat more than trend. again, thank you for giving me

##es ) experienced strong net capital outflows in 2015. it forecasts that further net outflows from china are expected to continue in 2016. these net movements of funds from emes in 2015 have been reflected, among others, in a decline in asean stock market values and an increase in the volatility of currencies in the region. how could these developments impact the philippines? i already spoke earlier about the positive impact of low oil prices on the philippines – which it helps reduce inflationary pressures while encouraging domestic consumption. we could, however, be adversely affected if the low oil prices cause export destinations of our ofws in the middle east to cut back on employment. as for the divergent growth prospects in the us and china, we could be affected via the trade channel. if us growth will continue and gain further traction, this could mitigate the impact of a slowdown in china. furthermore, our domestic financial markets have not been spared from the market volatility that these external developments have stirred. the philippine stock exchange index ( psei ) fell, credit default swaps ( cds ) and bond spreads widened, and the peso depreciated. to complete the picture, i should mention that we have our own domestic considerations in addition to these external challenges. most prominent of our domestic risks are the prospects of a prolonged el nino and the persistence of the infrastructure gaps. ladies and gentlemen, this is the operating environment expected in 2016. as i said, while it ’ s the same factors, how these factors will play out may not necessarily be the same in 2016. to paraphrase the title of the book of reinhart and rogoff, “ this time it could be different. ” you may ask – how can we claim ( as a second headline ) that – “ the philippines will sustain its resilience in 2016? ” first, because we have come into 2016 from a position of relative strength. this was my first headline. second, from the point of view of the bsp, we have been focused in our policy thrusts. bis central bankers ’ speeches we are forward - looking in our policy formulation. let me illustrate using our monetary policy. in 2014, we moved pre - emptively, in anticipation of the fed lift off. markets had been talking about “ lift off ” since the fed “ taper tantrum ” in may 2013. but because until 2014, the fed had only moved to end qe and not actually