In 1996, notwithstanding that inflation was slightly above the then 0 to 2 per cent target and notwithstanding the tax cuts and increased government expenditure, we were projecting inflationary pressures to abate over 1997 and 1998, with a period of positive but below-trend growth. In other words, we were projecting the proverbial soft landing. On this basis, we began easing, in December 1996.
What turned a soft landing into something much harsher was the Asian crisis and the drought, both unpredicted and unpredictable in 1996. In fact, judging from the inflation outcomes it is not at all obvious that monetary policy in 1996 was too tight.