These exercises generated a range of estimates, but, broadly speaking, they suggested we would have to do a series of rate increases, lifting the repo rate to 8% or higher, to get inflation to 4.5% – assuming everything else in the economy was normal. The estimated output sacrifice ratio was in the range of 1-1.5% of GDP.
It’s not a simple matter at all. Everything in monetary policy is interlinked. Every time you change direction, you set a chain of events in motion. Another aspect, which relates more to the functioning of financial markets, is the balance between the supply and demand for safe assets.