The short- to medium-run credibility of monetary policy was established quite quickly, as inflation fell to 2 per cent in early 1992, more than three years before the inflation-reduction target itself was slated to be 2 per cent.
[36] In this sense, retail deposits allow banks to hedge some interest rate risk on the asset side of their balance sheet: when interest rates rise, the value of assets falls, and the value of the deposit franchise rises. However, the deposit franchise is valuable only if depositors remain in the bank.