Norges Bank underlines that a tight fiscal policy will facilitate the implementation of monetary policy
In its September Inflation Report, Norges Bank projects consumer price inflation at a little less than 2½ per cent in 1998. With an appreciation of the krone exchange rate to its initial range, price inflation is estimated at 2¾ per cent in 1999, which is a downward revision of the estimate in the June report. If the exchange rate remains at its current level, price inflation may rise to 3¼ per cent in 1999.
In a commentary, Central Bank Governor Kjell Storvik points out that monetary policy is conducted in accordance with the Exchange Rate Regulation.
"Monetary policy instruments are oriented with a view to returning the krone exchange rate to its initial range, as defined in the Exchange Rate Regulation. A tighter fiscal stance will contribute to facilitating the implementation of monetary policy," says Governor Storvik.
The Inflation Report presents Norges Bank's projections for the Norwegian economy for 1998 and 1999. After expanding for a number of years, the Norwegian economy will exhibit slower growth next year. Mainland GDP growth is estimated at 3½ per cent in 1998 and 1¼ per cent in 1999.
The increase in interest rates and growing uncertainty concerning economic developments will contribute to lower growth in private consumption and a marked fall in mainland fixed investment next year. However, capacity utilisation in the economy will remain very high and tight labour market conditions are expected to persist in 1999. The projection for wage growth in 1998 remains unchanged at 6 per cent. Depending on movements in the exchange rate, wage growth is estimated at 6-6½ per cent in 1999, which is slightly lower than the projection in the June Inflation Report.
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