All of these factors can affect the neutral interest rate, potential output and inflation expectations.13 If financial market participants understand the conditional nature of our forecasts, the 90-day interest rate projection can help participants understand how we are likely to respond to changes in the economic outlook. Every three months we provide a new projection for the 90-day interest rate.
The changes in this projection, and the analysis in the Monetary Policy Statement (MPS) on the state of the economy, illustrate how unforeseen events have shaped the Bank’s outlook for policy. Over time, this should help financial market participants understand the Bank’s “reaction function” – that is, how economic events affect the outlook for inflation and the implications we draw for monetary policy.