The objective of monetary policy is low and stable inflation. The inflation target is set at 2½ per cent. The key interest rate is set on the basis of an overall assessment of the inflation outlook, normally two years ahead.

In Norges Bank’s most recent Inflation Report published on 27 February, consumer price inflation two years ahead with unchanged interest rates was projected at 2½ per cent. In the report we pointed to the uncertainty associated with global economic developments and indicated that import price inflation may pick up at a later stage than previously anticipated. At the same time, there was a risk that wage growth would be higher than projected. Overall, the risks to the inflation projection were considered to be balanced.

It now appears that economic growth in the US is picking up faster than assumed in the February Inflation Report. There are still few signs of stronger growth in Europe, but it is likely that growth will pick up as the recovery in the US takes hold. In Japan there is still little evidence of an imminent recovery. Oil prices have exhibited a marked rise. A persistently high oil price could fuel externally generated inflationary impulses to the Norwegian economy. On the other hand, higher oil prices may in isolation have a dampening impact on a global upturn.

The krone exchange rate has continued to appreciate. The effective krone exchange rate is now 2 per cent stronger than assumed in the Inflation Report, which will in isolation exert downward pressure on inflation.

The domestic economy has largely followed the path projected in the Inflation Report. Consumption indicators point to strong growth in private consumption. House prices are on the rise. Household borrowing is at a very high level. The labour market remains tight. Wage negotiations are under way, but at this stage it would be premature to draw any conclusions about the outcome.

Consumer price inflation adjusted for tax changes and excluding energy products was 2.6 per cent in the twelve months to March this year.

According to Norges Bank’s overall assessment of the balance of risks, the probability that inflation two years ahead will be higher than 2½ per cent is the same as the probability that it will be lower.

Pursuant to the mandate for monetary policy, Norges Bank shall regularly publish the assessments underlying the implementation of monetary policy. Norges Bank has presented its annual report for 2001 today. The report contains an overview of the implementation of monetary policy in 2001 and discusses monetary policy performance. The report also provides an overview of the Bank’s work in the field of financial stability and the central bank’s activities in general.