In accordance with the guidelines set out for monetary and exchange rate policy, Norges Bank has sought to maintain a stable krone exchange rate against European currencies since the krone was floated in December 1992. With a view to stabilising the krone exchange rate, Norges Bank has reduced key rates on several occasions and has also undertaken considerable interventions.

The krone exchange rate has recently been under persistent pressure. Norges Bank has purchased foreign currency equivalent to NOK 20 billion since the start of 1997. Since the reduction in interest rates on 8 January, the krone has continued to appreciate against European currencies and Norges Bank has had to intervene heavily in the market with a view to stabilising the exchange rate.

Pursuant to the exchange rate regulation issued by Royal Decree, the krone exchange rate may deviate temporarily from the range set out in the regulation, but in the event of substantial changes in the exchange rate, monetary policy instruments shall be oriented towards gradually returning the exchange rate to the range prevailing since the krone was floated on 10 December 1992.

Against this background and in the light of developments in the foreign exchange market, Norges Bank will not intervene to any substantial extent in the foreign exchange market over a period. In addition, Norges Bank reduces the interest rate on commercial and savings banks' deposits with Norges Bank, the deposit rate, by 0.25 percentage point. The central bank overnight lending rate to these banks is also lowered by 0.25 percentage point. With effect from 10 January 1997, the deposit rate is 3.25 per cent and the overnight lending rate 5.25 per cent.