Because monetary policy actions take time to have their full impact on the economy, we must aim these actions at where we see the economy sitting 18 to 24 months into the future.
In doing so, we are always looking at what is called the output gap - the difference between the actual level of production in the economy and the level of potential output. If the economy is operating above its potential capacity and inflation appears likely to be above target in the future, then we would tighten monetary policy.