The objective of monetary policy is a stable krone exchange rate against European currencies, defined since the beginning of the year as the euro.
Norges Bank does not have the instruments to fine-tune the krone exchange rate. In its orientation of instruments, the central bank places emphasis on the fundamental preconditions for exchange rate stability.
Price and cost inflation must therefore be reduced to the level aimed at by the euro area.
At the same time, it must be ensured that monetary policy itself does not contribute to deflationary recessions.

The analyses in Norges Bank's inflation reports, in conjunction with its continuous evaluation of the outlook for price and cost inflation and conditions in money and foreign exchange markets, provide the basis for decisions regarding monetary policy instruments.
Norges Bank's assessment of prospects for economic developments was last presented on 16 December in the December 1999 Inflation Report.

The overall picture is that the economy is in a period of slow economic growth. This risk of a pronounced downturn seems to have receded compared with previous assessments.
Growth in the various sectors is expected to vary, with a downturn in the manufacturing sector, but continued growth in the services sector.
The analyses in the Inflation Report indicate that price inflation will, over time, slow to the level aimed at by the euro area.

The krone exchange rate against the euro has weakened slightly over the past month, varying between NOK 8.06 and NOK 8.22.
Measured against the trade-weighted index, the krone has been stable. Long-term interest rates have moved up slightly internationally and in the Norwegian market.
Consumer price inflation was 2.8 per cent in December, reflecting rising electricity prices.
The underlying rise in prices, which excludes changes in electricity prices and indirect taxes, were in line with projections, showing a year-on-year increase of 2.5 per cent. Twelve-month growth in the money supply (M2) and credit from domestic sources (C2) moved up to 8.6 per cent and 8.0 per cent respectively in November. The increase in growth in the money supply may in part reflect extraordinary liquidity demand in connection with the turn of the year.

Norges Bank reduced its deposit and lending rates by a total of 2.5 percentage points in 1999.
In the light of developments indicated by our analyses, interest rates now appear to be at or close to the trough in this business cycle.