Concerning the wider subjects of exchange rate expectations and risk perception, a crucial factor will not only be how monetary policy is conducted but also the comprehensiveness and consistency of the overall macroeconomic adjustment program. As noted earlier the terms of trade shock is large; moreover, an announced fiscal adjustment program is in train within the context of a recently unveiled Central Government budget.
The financial market developments of the past 12 months and the culmination of events in the last fortnight have attracted a lot of interest from the general public. These events have highlighted the interlinkages between the financial and the real sphere and the implications these linkages have for monetary policy. Understanding developments on financial markets is a cornerstone for monetary policy making.