Also, the existing easy monetary policy stance and positive terms of trade effects were expected to add to domestic inflation pressures. The persistence of the shock has resulted in CPI inflation running below the 2% target mid-point for a considerable period. Such a policy response to external supply shocks is consistent with our flexible inflation targeting framework.
More recently we have been assuming greater persistence in low global inflation and this is contributing to our current flat track for future OCR levels. In our recent November Monetary policy statement, we assume that weak global inflation will persist in line with the forecasts of the international institutions. This now puts some risk on the upside for inflation and interest rates.