The following is an English summary of the main questions and answers after the formal introduction by the Chairman of the Board of Governors and the presentation by the Chief Economist at the Press Conference on March 29, 2007.

Question: What is the likelihood that alternative scenarios I and II will occur simultaneously, or will a decision on new investments in aluminium smelters and power projects prevent the króna from depreciating?

Chairman of the Board of Governors: The alternative scenarios point in different directions. At the outset, the króna would be likely to appreciate following an announcement on further aluminium smelter investment. It is more difficult to predict what will happen further down the road.

Question: Do you include an alternative scenario in the other direction, i.e. an event that would permit the Central Bank to begin lowering its policy rate earlier than now projected?

Chairman of the Board of Governors: No, we do not have a separate alternative scenario for that eventuality. In the alternative scenarios we focus on events that could lead to slower reductions in the policy rate than currently projected, but for different reasons. One may say that the reduction in the policy rate will be relatively rapid once it starts. The projection entails, on the other hand, that the reduction will start later than many might have expected. Nonetheless, that does not represent much of a deviation from what the Central Bank itself has stated on previous occasions.

Question: Is there any likelihood that the Bank will be able to start reducing interest rates earlier than now anticipated?

Chairman of the Board of Governors: I don’t think it is advisable at this stage to speculate in that direction. The forecasts issued today are based on the best available information at present. We will of course consider changes in important indicators as they emerge. They could move in both directions. On the basis of current information, the policy rate path implied by today’s forecast is the most likely one. Even though the Board of Governors is not committed to the policy rate path, it does not doubt that it is based on the best available information. There is no disagreement within the Bank in that respect. What we are looking at now is the most likely picture. According to the rules by which the Bank operates, the Board of Governors takes decisions on interest rates on pre-determined dates. In arriving at its decisions, it looks to all the relevant information that has become available since the last decision. I emphasise that there is no difference of opinion within the Bank about the outlook as presented in our forecast today.

Chief Economist: I draw your attention to a table on page 55 of Monetary Bulletin where the main asymmetric uncertainties in the baseline forecast are shown. It identifies one uncertainty which could work in the opposite direction from the alternative scenarios, i.e. a fall in asset prices which could lead to a contraction of private consumption beyond what is anticipated in the forecast. A reduction in housing prices would also have a direct impact on the consumer price index.

Question: Do you expect the output gap to narrow sufficiently in the event of a decision on at least one of the aluminium projects under consideration?

Chairman of the Board of Governors: We mention specifically that if such investments go ahead it will be vital for decisions on their timing and speed to take macroeconomic conditions into account; they should not occur until the economy has cooled down.