However, this is seldom the case. Headwinds and tailwinds are often present, threatening to push economic activity and inflation higher or lower. Monetary policy needs to lean against these forces with opposing pressure from higher or lower interest rates in order to stabilize the economy and to keep inflation on target.
Monetary policy is seldom static; it has to respond as these forces ease or escalate. 3. Focusing on price stability limits the Bank’s ability to pursue its other major objective, financial stability. Not true.