The inordinate bank credit expansion in a contextual excess liquidity situation largely attributed to the then sugar boom, the oil price shock of 1973 combined with an across-the-board increase in wages and salaries had given rise to double-digit inflation rates, thus putting a stop to a very long period of price stability.
Rising cost of living had made it compelling for the Government to introduce what is today known as the annual cost of living compensation. Inflation had turned out to be a serious policy concern. In today’s free market context, one would have ordinarily expected the cost bank credit to go up, meaning that interest rates would have had to be stepped up.