. the policy rate increase is intended to prevent a rise in pressures in the economy that would trigger an acceleration in price and wage inflation. a higher interest rate also mitigates the risk of a renewed, rapid rise in property prices and debt. high price and wage inflation and a further build - up of financial imbalances would increase the risk of a sharp economic downturn further out. the plan is to move gradually to a more normal interest rate level. our assessment in march was that capacity utilisation was slightly above a normal level. at the same time, underlying inflation was a little higher than the inflation target of 2 percent. our projections implied that the policy rate would be raised in the course of the next half - year. there were also prospects that the policy rate would rise to 1. 75 percent by the end of 2022. this means that the average residential mortgage rate could increase from 2. 6 percent in march to 3. 5 percent in the course of the same period. we therefore believe that interest rates will not be as high as in previous upturns. with that path for the policy rate, inflation is projected to be close to target in the years ahead, at the same time as unemployment remains low. more persons employed and prospects of higher wage growth will contribute to lifting income. despite higher interest rates, there are prospects that most households will experience an improvement in purchasing power in the coming years. the risk outlook is dominated by global developments. over the past year, rising protectionism and political uncertainty have weighed on global growth. the uk ’ s relations with the eu have yet to be clarified. if trade tensions deepen, growth among trading partners may be lower than we projected in march. the uncertainty surrounding global developments and the effects of monetary policy suggests a cautious approach to interest rate setting. our most recent monetary policy meeting was held yesterday, and we published the decision earlier today. since the publication of our march projections, capacity utilisation appears to be rising as expected, while inflation has been a little higher than projected. global uncertainty persists. at its monetary policy meeting, the executive board decided to keep the policy rate unchanged at 1. 0 percent. the executive board ’ s current assessment of the outlook and balance of risks suggests that the policy rate will most likely be raised in june. our mission is to deliver low and stable inflation, while contributing to high and stable output and employment. should economic developments diverge from our current projections, the policy rate path

interest rate reductions and the fall in the krone exchange rate imply that inflation will gradually increase and will be considerably higher than the current level as early as next spring. after such a period of very low inflation as we have now witnessed, it is appropriate to be particularly vigilant in monetary policy in the event that inflation does not increase as projected. we have little experience concerning the effects of such considerable monetary policy easing as that seen over the past year. it is uncertain how economic agents will adapt to a real interest rate that is as low as it is now. activity in the norwegian economy may pick up more swiftly than expected. excess capacity may be reduced more rapidly and unemployment may fall to a greater extent than we have projected. if new pressures arise in the norwegian economy, inflation may be higher than projected. growth in household borrowing, which has slowed since spring 2002, may accelerate again. a renewed rise in house prices and the debt burden may provide the basis for new imbalances in the economy. on the other hand, growth in corporate borrowing has remained very low. the projections are based on the assumption that wage growth is primarily determined by overall conditions in the labour market. it cannot be ruled out, however, that profitability in internationally exposed industries will again play a more prominent role in wage formation than has been the case in recent years. overall wage growth may then be lower than projected and provide the basis for an easing of monetary policy. the global economy appears to be vulnerable to new disturbances. since summer 2002, international financial market developments have been marked by increased optimism concerning the growth outlook. equity prices and long - term interest rates have risen. the increase has been uneven, however, and there have been wide fluctuations between major currencies. this may be a reflection of the uncertainty about the strength of the global economic recovery. developments in the krone exchange rate represent a source of considerable uncertainty. the relationship between the krone exchange rate and the interest rate differential against other countries is not necessarily stable over time. themes in international financial markets shift. we may not yet have seen the full effects of the interest rate reductions on the krone exchange rate. even though norges bank is forward - looking in its conduct of monetary policy, thorough knowledge of the current economic situation is extremely important. an up - to - date and correct picture of the current situation is necessary to make accurate projections for the period ahead. in autumn 2002, norges bank established a regional network as a tool to gauge