While monetary policy could still be effective, an impaired money market has serious consequences for the private financial intermediation and eventually poses difficulties for the transmission of monetary policy and the optimal asset allocation within the economy as well as risks to financial stability.
*  *  *  With economic prospects improving, people’s thoughts naturally turn to the question “what next for monetary policy?” Financial markets were the first to ask this question. Virtually as soon as the cash rate stopped falling, the pundits started to speculate about the timing of the first increase. Initially, this change in market tone seemed a little premature.