This permitted the government to persuade the labor unions to abandon the backward looking wage indexation scheme, which by its nature had perpetuated the inflationary spiral for years and instead to move to forward looking wage increases, based on the continuously declining annual inflation target set by the government.
This evidence, which had been accumulating through the summer, led the Bank to scale back its previous expectations for economic growth during the second half of 2001 and the first half of 2002. Consequently, on 28 August, we lowered interest rates to support domestic demand growth and to keep inflation near the target of 2 per cent over the medium term.