Second, we have seen that instrument independence is key to an effective monetary policy, since it allows the central bank to act quickly and flexibly to shocks, especially in exceptional times. Indeed, a well-equipped toolbox, comprising both standard and non-standard instruments, has proven indispensable in conditions where monetary policy transmission is impaired or where space for interest rate cuts is limited.
We raised our policy rate and started the process of quantitative tightening—letting the bonds we purchased over the course of the last two years mature and roll off our balance sheet. Interest rates remain low, but they are rising, and they will need to move higher still.