relationship between short - term and long - term interest rates interest rates with a long maturity may be viewed as a sequence of expected short - term interest rates at different future dates. changes in expectations concerning norges bank ’ s future monetary policy may therefore influence interest rates with a maturity in excess of 1 - 2 months. norges bank ’ s mandate for monetary policy is well known in the market. when economic agents also understand norges bank ’ s response pattern in connection with events in the economy, market expectations concerning the interest rate will change as a result of economic news and to a lesser extent as a result of norges bank ’ s interest rate decisions in themselves. norges bank reduced the key rate at the monetary policy meeting on 17 september 2003. short - term interest rates showed little change since the interest rate decision was expected by market participants. at the same time, the bank changed its bias concerning future inflation. at the monetary policy meeting in august, the bank stated that, with an interest rate of 3 per cent, the probability that inflation two years ahead would be lower than 2½ per cent was greater than the probability that it would be higher. following the meeting on 17 september, the bank stated that, with an interest rate of 2. 50 per cent, the probability that inflation two years ahead would be higher than 2½ per cent was the same as the probability that it would be lower. expectations concerning future short - term interest rates rose slightly, probably as a result of the change in norges bank ’ s bias concerning future inflation. this was perceived as new information by market participants. the yield curve was therefore a little steeper following the monetary policy meeting. svensson, l. e. o. ( september 2002 ), " monetary policy and real stabilization ". princeton university the market ’ s expectations concerning future short - term rates can be reflected in forward rates. interest rate expectations for the next few years largely depend on the economic outlook and market expectations concerning monetary policy. in the long term, up to ten years, market participants are unlikely to have any particular expectations concerning cyclical fluctuations. the forward rate may then be interpreted as the sum of the expected real interest rate and expected inflation when the economy is in balance. without limitations on capital movements, the real interest rate must be expected to develop approximately the same across countries over time. if there are no systematic differences in the risk premium between countries, differences in forward rates may be interpreted as differences in inflation expectations between countries. in

all the money we spend daily is deposit money created by a bank. there is little likelihood that many customers will withdraw large amounts simultaneously. banks can therefore create far more deposits than they can pay out at the same time. 6 but a bank cannot extend loans and create deposits without limitations. first, it must assess the customer ’ s debt - servicing capacity, ie credit risk. second, the bank must assess the degree of liquidity risk associated with lending long and creating deposits that customers can withdraw at any time. third, it must comply with statutory rules. banks ’ willingness to assume some degree of liquidity risk is a public good. in its absence, we would have less access to long - term loans and money in the form of bank deposits. on the other hand, too much liquidity risk entails a risk of instability and crises like the one we experienced in 2008. banking regulation implicitly provides a trade - off between these considerations. the other main activity of banks is payment services, which are services we use virtually every day. today, most people in norway receive money as a bank deposit directly into their account. as long as there are payment solutions that give us cheap and simple access to money, the account is an efficient and safe wallet. chart : banks provide payment services but how is it that bank deposits can become money that we can use as payment? an important pre - condition is that there is an infrastructure to enable deposits to be efficiently transferred 2 / 7 bis central bankers'speeches between customers and banks. as the bankers ’ bank, norges bank creates the money banks use to pay each other, so - called central bank reserves, which are the banks ’ deposits at the central bank. transfers of customer deposits between banks can take place without frictions because a corresponding amount of central bank reserves are transferred between banks ’ own accounts at norges bank, where banks have a common and trusted means of payment and settlement system. this helps ensure that there is no difference between the money created by dnb and money created by nordea. the money is interchangeable. for us, it is all norwegian kroner. as such, banks play a key role in delivering services we want from the financial system, albeit subject to a framework designed by the norwegian authorities. the banking sector is more strictly regulated than most sectors of the economy. with the right to create money comes obligations. competition from new participants chart : competition from new participants many of the services banks offer can be provided by others