Though fulfilling its mandate is an important obligation for a central bank, each central bank increasingly pays attention to the possible trade-off between price stability and financial stability. This arises from the lesson of the global financial crisis, whereby relatively low policy rates in a low inflationary period can contribute to accumulating financial imbalances.
So, once again, financial deregulation has given the cycle, for better or worse, more room for manoeuvre. The old world of “stop/start” did not have much to recommend it, but nor did the world of the late 1980s, where an asset boom developed a big head of steam and inevitably was damaging when it came to an end.