The most recent forecasts now show forecasts of 2,7 per cent and 3,8 per cent for these two years, and the MPC viewed the risks to these forecasts to be on the downside. The value of merchandise exports contracted by 2,4 per cent in the first quarter of 2012and the terms of trade have deteriorated for two consecutive quarters.
The resulting current account deficit contributed to a weakening of the exchange rate. Capital flows have been highly volatile in response to changing global investor risk perceptions which in turn have impacted on the exchange rate. Since August 2011, the exchange rate has depreciated by around 23 per cent against the US dollar, and the volatility has increased.