In times of crisis, this link between short-term interest rates and price developments can be weakened dramatically. Financial fragilities in money or capital markets or in banks may render the interest rate instrument ineffective. Disinflationary developments may be strong enough to eventually remove the central bank’s room to lower short-term instruments. This situation requires recourse to more complex and potentially untested instruments.
It complicates the duty to explain but makes convincing explanations even more critical to the credibility and effectiveness of policy.