These two pillars – the introduction of the price stability target and the accompanying bold monetary easing – will lead to a rise in the expected rates of inflation – that is, the course of inflation that the public expects to take place in the future.
As inflation expectations rise, the expected real interest rates — the real burden incorporating the price rises — will fall. Let me elaborate on what I mean by this, as it is somewhat difficult to understand. Suppose you borrow money at the rate of 3 percent.