On that note, a number of policy mix of monetary and macroprudential instruments have been implemented during 2010 to mitigate the global and domestic risks. In the midst of surging capital inflows and abundant excess liquidity, efforts to combat inflationary pressure cannot solely rely on conventional policy instruments such as the interest rate. Increasing interest rate may attract even more capital inflows.
But, as I noted earlier, I am concerned that the recent low readings for inflation may be driven by depressed underlying inflation, which would imply a more persistent shortfall in inflation from our objective. In that case, it would be prudent to raise the federal funds rate more gradually.