With regard to the first one, the key is whether real interest rates will decline further – in other words, whether people’s medium- to longterm inflation expectations will rise further only with the Bank’s “strong and clear commitment” – in a situation where it is becoming difficult for nominal interest rates to decline.
On balance, the economy has been performing as well as can be expected in this difficult global environment and after a period of domestic overheating. While growth was modest last year, nonetheless, the economy has retained the substantial gains in living standards and employment achieved since 1994.