Exceptionally low nominal interest rates have contained debt servicing costs, and that’s good news; the flip side is that fiscal positions are highly exposed to changes in the monetary policy stance, especially if changes are abrupt. Finally, what if the current low interest rates were the new long-run equilibrium? In this case I would see serious challenges for monetary policy management.
The simple answer is: very well indeed. Let's look at developments in four key areas. First, inflation, as measured by the all-item consumer price index. Since 1995, inflation has been low and on target, averaging 2 per cent per year.