This is partly because in mid-2017 we had begun to remove some of the policy accommodation that had been in place for many years. Since then, we’ve increased our policy rate from 0.50 per cent to 1.75 per cent in October of last year. Our policy rate is transmitted to the economy through various channels.
It affects returns on savings and investments as well as borrowing rates. It also has a small direct effect on inflation from higher mortgage interest costs. Thus, it affects decision making by households and firms, influencing spending and borrowing patterns. After the global financial crisis, low borrowing rates led households to take on debt, primarily through the housing market.