Lehman had just failed, and we were getting the initial reports of the fallout, like reports of battlefield casualties, that market after market was damaged or frozen. Credit spreads, the difference between the rate in any given market and the risk-free rate, were blowing up, bringing financial activity to a near standstill.
It requires the Bank to seek to avoid unnecessary instability in interest rates, output and the exchange rate in its pursuit of the price stability target. This is known as flexible inflation targeting and all inflation-targeting countries take the same basic approach. The forecasting framework enables these trade-offs to be systematically addressed and balanced.