Central Bank Governor Kjell Storvik states that the decision comes in response to developments in the money and foreign exchange markets. The krone exchange rate has recently been under persistent pressure, and since the reduction in interest rates on 5 November 1996 Norges Bank has purchased foreign currency equivalent to NOK 38 billion, of which a good NOK 15 billion has been purchased since the beginning of 1997. The krone has also appreciated to the strongest level against European currencies since the krone was floated in December 1992.

Kjell Storvik points out that pursuant to section 4 of the Norges Bank Act, the King makes decisions regarding the exchange rate arrangement for the krone and changes in the exchange rate level of the krone. When writing about monetary and exchange rate policy in the Final Budget Bill 1997, the Government emphasised a stable exchange rate as a guideline for monetary policy. Considerable importance is attached to avoiding substantial changes in competitiveness due to exchange rate changes. Furthermore, it was stated that within the limits set by the exchange rate regulation there is a clear limitation on the extent to which monetary policy in the current situation can contribute to stabilising developments in the economy. According to the Final Budget Bill, this further underlines the responsibility of fiscal and incomes policy. In Parliament, the majority in the Standing Committee on Finance concurred with these assessments. Norges Bank takes note of this.

In Norges Bank's view, these guidelines place clear limitations on the central bank's scope for manoeuvre in the operational application of monetary policy. Against this background and in view of the extensive interventions that have been carried out, a reduction in interest rates is necessary to stabilise the exchange rate.