Nevertheless, it is still the monetary policy strategy of the monetary authority that determines the reaction. As I have already indicated I do not support the idea that the monetary authority should ‘follow the markets’.
But this does not mean that it could not remain low for a time (or even go lower temporarily) while the economy is recovering. This is, in fact, what we would expect to happen if significant numbers of households decided to cash in some of their accumulated financial assets in order to spend. Third, the high unemployment rate.