The first was the case where downside risks to the Bank’s outlook for economic activity and prices materialized and it was necessary for the Bank to sharply revise downward its outlook. The second was the case where the Bank’s credibility over monetary policy conduct was at risk of being questioned by the public and the market.
In particular, almost all the crisis countries had high ratios of short-term external debt to foreign reserves. There was too much emphasis on borrowing strategies that aimed simply at minimizing short-term funding costs and that, in the process, created significant rollover risks.