And when the economy is expected to operate below its production capacity, and inflation is poised to fall below target, the Bank will lower interest rates to stimulate growth. We also factor in shocks that directly affect inflation. Because we target domestic inflation, we have a floating currency.
This new model is under development and still needs to be perfected – in particular in the financial sector, more work still needs to be done. That said, problems of regulatory arbitrage created by national level banking supervision are being addressed through an increasing harmonisation of supervisory standards and the establishment of a European System of Financial Supervisors with new European Supervisory Authorities.