It is a mistake to think that the Bank is concerned only with inflationary risks. This can be understood from the conduct of monetary policy in the recent period. In February 1999, the Bank embarked on drastic monetary easing, namely the zero interest rate policy. And in April, it made clear its firm intent to maintain this policy until deflationary concerns are dispelled.
In a context of monetary sovereignty, the imbalances translated into currency depreciation, international reserves depletion and high and rising inflation rates. With monetary policy fully available at national level, financial repression was the name of the game. The policy prescription consisted of interest rate increases, credit growth targets, capital controls and the devaluation of the escudo to contain domestic demand and restore export competitiveness.