17 The exact amount that can be provided will depend on a range of factors, including the type and amount of collateral, the currency composition of the lending and the concentration to individual counterparties. 18 See https://www.bankofengland.co.uk/-/media/boe/files/letter/2016/governor-apf-letter-040816.pdf. 10  All speeches are available online at www.bankofengland.co.uk/speeches  10  desire to have sufficient scope to cut Bank Rate materially – relative to the effective lower bound on Bank Rate of 0.5% at that time – if necessary to respond to adverse shocks. 19  Although the principles guiding the MPC’s choice of threshold still hold, with the lower bound on Bank Rate now permanently close to 0%, the MPC views that the level from which Bank Rate can be cut materially is now around 1.5%. Reflecting this, the MPC now intends not to reduce the stock of purchased assets until Bank Rate reaches around 1.5%. Any reductions in the stock of purchased assets will be conducted over a number of years at a gradual and predictable pace. The MPC continues to view sales and reinvestment decisions as equivalent from a monetary policy perspective. While any reduction will be solely a decision for the MPC based on meeting its objectives, the Bank will liaise with the Debt Management Office ahead of implementing any change in its asset purchase programme. As asset purchases unwind, decisions on Bank Rate will take into account any impact of changes in the stock of purchased assets on overall monetary conditions in order to achieve the inflation target.
In addition to these objections to the simple Taylor rule it can be noted that there is a lot of evidence to the effect that instead of being stable, the equilibrium interest rate in the equation varies with the potential growth rate. This is a view that can be traced back to the Swedish political economist Kurt Wicksell’s notion of a “natural interest rate”. A monetary policy based on forecasts I should now like to present some reflections on the forecast-based monetary policy we undertake at the Riksbank. First of all, an inflation targeting policy based on forecasts has several basic characteristics in common with the other alternatives I have been discussing. (This, however, does not apply to the alternative of basing policy solely on CPI outcomes.) One common denominator is the fundamental philosophy and aim of safeguarding the value of money. Monetary policy strives for price stability as a way of providing a nominal anchor for the economy. Another similarity is the medium-term perspective rather than short-term activism. This in turn calls for a forward-looking perspective when the instrumental rate is set. A further resemblance is that in the Riksbank’s strategy, monetary policy reacts systematically, though neither automatically nor mechanically; this helps households and firms to base their expectations of inflation on a monetary policy that is predictable. We have followed our rule of action relatively closely, as is evident from Diagram 1. 4  BIS Review 24/2002  1.