Monetary policy and financial stability Another important area for the Bank next year will be to continue to embed financial stability linkages in our monetary policy framework. Let me illustrate with an example. Consider a situation where we updated our economic forecast and concluded that inflation was likely to move below our target.
Our models would suggest that we should lower interest rates to stimulate economic growth and bring projected inflation back to target, usually over six to eight quarters. Now consider the same situation, but with high levels of financial vulnerabilities. Stronger economic growth from lower interest rates would make it easier for everyone to service their debt.