We live in an uncertain world This anchoring of inflation expectations is of considerable assistance in the way monetary policy operates, and should mean that interest rates may not need to move around as strongly as at times in the past. But does that mean that the Bank will be able to formulate policy with perfect foresight, and without controversy, in the future?
Of course not. Inevitably, sometimes things turn out differently than expected. For example, 90 day interest rates rose from an average of 4.6 per cent in February 1994 to 9.5 per cent in December that year. At the time, that increase in rates seemed to be ample to contain inflationary pressures.