First, we clarified our reaction function to the main risks we saw and the instruments we would use if each of those risks materialised.5 This sent a clear signal to observers that we were ready to respond in the case of adverse contingencies.
Then, when those contingencies arose, we followed through with our forward guidance and introduced a set of policy measures that was designed to cover the full downside distribution of risks – that is, a very accommodative policy stance to combat disinflationary forces, and an option to be even more accommodative if the situation deteriorated into outright deflation.