When you are aiming at a relatively slow-moving variable like inflation, you do not need to react as rapidly as you might have had to with something like the exchange rate. As a result, interest rate changes have been smoother. Back in 1998, for example, before we started inflation targeting, we raised interest rates by almost 7 percentage points in just five months.
The policy rate went to nearly 22% and the prime rate reached 25.5%. In more recent years, by contrast, we adjusted the policy rate by just 2 percentage points over three-and-a-half years, to 7%, before lowering it to 6.75% in July. This sort of smooth adjustment is much easier on firms, households and government than large, rapid adjustments.