Key questions and concepts for the economy and the financial system - briefly explained
The policy rate
The level of the policy rate influences, directly and indirectly, many of the everyday economic decisions you make.
The policy rate is set by the Monetary Policy and Financial Stability Committee, normally eight times a year.
Once the Monetary Policy and Financial Stability Committee determines the policy rate, the Committee sets the banks' deposit and lending rates in Norges Bank. This is the first step toward the policy rate influencing other interest rates in the economy.
Changes in the policy rate influence activity levels across the whole economy and thereby inflation. The impact is transmitted through various channels and often with some lag.
Inflation and monetary policy
Both rapidly rising and falling prices can pose challenges to the economy. The best course of action is therefore to aim for something in between.
Monetary policy is about how the policy rate influences variables such as inflation and economic growth.
A well-functioning financial system is fundamental to a modern economy, and banks perform important functions for society. They must therefore be secure.
The central bank is the core of the financial system and is responsible for ensuring that important pieces of the system function.
The countercyclical capital buffer is a component of the total capital requirement that banks must meet to be more resilient. It is intended to contribute to building bank capital during upturns.
Money and payment system
There are primarily two types of money in the payment system, notes and coins issued by Norges Bank (cash) and deposits in banks (deposit money).
The emergence of new types of payment instruments throughout history has been gradual and payment instruments are constantly evolving. Cash will nevertheless continue to be in use for many years.