Our approach currently is for interest rate policy to be focused on inflation, and for the Bank’s Financial Stability Committee (FSC) to use other macroprudential policies to moderate financial stability risks. While our tool-kit is still being refined, we have implemented the framework of a countercyclical buffer for banks which will be over and above the capital requirements of individual banks.
This provides the FSC with a tool to change capital requirements in order to protect the banking system from the boom and bust phases of the financial cycle, and is an integral part of the internationally agreed standards for risk-based capital requirements. Currently, given the weak state of bank lending, this buffer is set at zero.