Interest rates today and the economy in the longer term - Governors speech

Quarterly Bulletin 1981 Q4
Published on 01 December 1981
  • Some may argue that the recent rise in interest rates was too large. But short-term rates have been exceptionally high in many countries for two years, and there has been a steady upward march in long-term rates. Even now, rates in this country are no higher than the international average.
  • Some reduction in the exchange rate was acceptable for its impact on industrial competitiveness. But to have sought to hold our short-term interest rates below the levels markets were signalling as appropriate would have risked unacceptable depreciation, with major effects on domestic costs.
  • While a monetary target provides a necessary discipline, in the short term our actions need to be guided by a range of considerations. To give weight to exchange rate considerations would on some occasions have meant loosening monetary control: in present circumstances, pursuit of the two objectives has been complementary and mutually reinforcing.
  • The prospect is one of gradual recovery. We must make use of this period of recovery to get inflation to quite small numbers and keep it there.
  • The gains achieved in industry during the past two years are potentially large. This year there has been a marked increase in manufacturing productivity, and unit labour costs have risen little-less than for nearly a decade, and less than for many of our competitors.

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