The Exchange Rate and the Mpc: What Can We Do?
10 Pages Posted: 3 Aug 2005
In this speech, Sushil Wadhwani, member of the Bank's Monetary Policy Committee, argues that looking only at a two year ahead inflation forecast when setting interest rates is likely to be sub-optimal, and that allowing asset price misalignments to have an additional impact on interest rates could enable a reduction in the volatility of inflation. Currently, sterling is probably 'overvalued' against the euro, and so this might affect the appropriate level of interest rates. Dr. Wadhwani also suggests that, under certain circumstances, sterilized intervention can be effective.
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