Assume also, in that event, that monetary policy followed a simple Taylor Rule and that inflation was unaffected.29 These are clearly very stylised assumptions. Nonetheless, on those assumptions, a Taylor Rule would suggest interest rates would need to be cut sharply to their zero bound, to cushion the hit to growth. If we do the same thought-experiment under the “deal” scenario, again using a simple Taylor Rule, we get instead an upwards-sloped trajectory for expected interest rates, on average 25-50 basis points higher than the slightly upward-sloped market path for interest rates prevailing in May. Clearly, these are two very different interest rate trajectories, reflecting two quite different Brexit economic outcomes.30  In the event of a ‘deal’, upward pressure on demand would also likely be accompanied with a stronger exchange rate, so the ex-ante impact on inflation is ambiguous. 30 My MPC colleague, Jan Vlieghe, made a similar point in his recent speech (Vlieghe (2019)). 29  29  All speeches are available online at www.bankofengland.co.uk/speeches  29  The market-implied path for interest rates is a probability-weighted mix of these two paths. With a 30% probability of “no deal”, this expected path would have interest rates falling in the near term before rising gently thereafter. Despite our scenarios being highly stylised and simplified, this expected path broadly mirrors the current market yield curve.
In order that the SNB is able to fulfil its mandate – of ensuring price stability while taking due account of economic developments – in the best possible way, it must make full use of its room for manoeuvre in monetary policy. For this reason, the SNB will not hesitate to take further measures to fulfil its mandate, should they prove necessary. Ladies and gentlemen, thank you for your attention. BIS central bankers’ speeches  3