We do believe, however, that as inflation comes down because of the weak economy and strong food production, the policy rate will become a stronger influence on bank interest rate setting, and will start influencing demand. A more important source of our influence today, therefore, is expectations.
If people believe we are serious about inflation, and their expectations of inflation start coming down, inflation will also come down. Of course, many people form expectations simply by extrapolating the most recent or most salient experience they have.