course of spring 2005. the contribution from the exchange rate to inflation will then gradually become slightly negative. there are prospects that inflation will reach the inflation target towards the end of the projection period. there is uncertainty surrounding the projections. the projections are partly based on our analysis of relationships in the economy, the exchange rate assumption and the forward interest rate assumption. we can give some indication of the uncertainty surrounding the projections on the basis of historical deviations between projected and actual price developments. based on these calculations, inflation at end - 2007 is projected with a probability of 50 per cent to be between 1. 75 and 3. 25 per cent. consumer prices may show erratic variations from one month to the next. these fluctuations may be due to temporary conditions. at other times, they may reflect more lasting changes. when the figures deviate from our projections, more observations are therefore needed before an assessment can be made of whether inflation is in line with the projections. the projections in the inflation report are based on the assumption that the interest rate moves in line with financial market expectations. this implies that norges bank maintains the key interest rate at the current level in the period to summer 2005, with a gradual increase thereafter. it is the executive board ’ s assessment that the projections seem to provide a reasonable balance between the objective of increasing inflation and at the same time avoiding excessive growth in output and employment. the projections imply a sight deposit rate in the interval 1¼ - 2¼ per cent in mid - march 2005. uncertainty as to the effects of previous monetary policy easing and the unusually low interest rate level imply, on the one hand, that we should exercise caution with regard to further interest rate reductions. on the other hand, the prospect of continued low inflation for a period ahead implies that wide deviations from projected economic developments would be required before interest rates should be increased. the prospect of continued low inflation in norway also implies that we should lag behind other countries in setting interest rates at a more normal level. at its monetary policy meeting on 3 november, the executive board decided to leave the sight deposit rate unchanged at 1. 75 per cent. at this meeting, the executive board did not see any clear alternatives to leaving the interest rate unchanged. in reaching its decision, the executive board has weighed the objective of bringing inflation back to target against the risk that output growth may eventually be too high.

effectively closed late last year, is moving closer to re - opening. in summary, the australian financial system is weathering the storm well. furthermore, while growth in credit to business has slowed quite sharply, and surveys say that business conditions have softened to the weaker side of average, overall profitability remains pretty strong. businesses still are maintaining high levels of fixed investment spending. indeed, according to the most recent data released about 10 days ago, firms plan a significant further expansion of investment spending in the year ahead, at a pace as fast as anything seen in a generation. strength in mining is exceptional, but other areas actually look robust as well. i have spoken in the past of the rise in the terms of trade adding to income and spending power. these actual and intended investments are evidence of that effect. whether all of the planned investment will come to pass – or whether it is economically feasible for it to come to pass – is a question open to debate. nonetheless, the strength of those intentions at this stage – a year into the global credit problems, and many months into the more conservative financial environment in australia – is remarkable. in addition, state governments continue to look to needed infrastructure upgrades. so these areas, on the best available recent evidence, remain likely to be sources of demand growth in the australian economy in the period ahead. this highlights again a theme that i have noted before, namely the contrast between household demand and other types of spending. even with a pretty significant slowing in household spending, total domestic demand in the economy rose at an annualised pace of about 4 per cent in the first half of 2008. this was down from about 5½ per cent during 2007, but is still quite strong. this same picture has been pretty consistent from the liaison the bank does with its fairly extensive list of contacts, numbering about 1, 500, around the country. those exposed to household spending are finding conditions subdued, while those exposed to the infrastructure and mining build - up are often struggling to keep pace. some of that demand has, of course, been supplied from abroad. so at the bottom line, we come to production and capacity utilisation. at this time of the year, with two quarters of national accounts available, growth in the economy is running at a pace slower than last year, and slower than trend. growth in real gdp in the june quarter slowed, though this was affected by a large decline in farm production because of drought, and which most forecasters expect to be reversed in