To give an example from the banking sector, if a bank sanctions a loan on the basis of inaccurate and misleading financial statements and the borrower company is ultimately unable to repay, the bank loses both the principal and the interest. Apart from the loss incurred, this could make the bank risk averse and deprive other eligible companies from bank funding.
Our policy reviews say that we would like inflation to be in the 4–4.5 per cent range in the medium-term, while aspiring for a 3 per cent rate in the long term.