The macroeconomic effects of new-style crises involving market liquidity, as in 1998, or outsized movements in asset prices may be more readily cushioned by monetary policies aimed at bolstering the general level of liquidity and reducing interest rates. Such policies also carry less risk of increasing moral hazard.
Headline CPI inflation averaged 3.9 per cent since the institution of flexible inflation targeting right up to the onset of the pandemic in March 2020 (i.e., during October 2016 – March 2020). With the first onslaught of COVID-19, headline inflation breached the upper tolerance band and averaged 6.2 per cent in 2020-21.