Operation of monetary policy

This article covers the three months from mid-November 1985 to mid-February 1986.

The period under review was one of considerable turbulence in financial markets. Towards the end of 1985, doubts about the development of broad money, a softening in the exchange rate as the oil price began to weaken, and concern about unit labour costs brought upward pressure on interest rates, which culminated in a 1% rise early in January. Thereafter the situation was dominated by an accelerated fall in oil prices, initially producing further strong upward pressure on interest rates, which was resisted, and then an orderly decline in the exchange rate. By the end of the period the oil price appeared to have steadied and domestic monetary indicators were more reassuring. As a result, the exchange rate stabilised and domestic financial markets also became much more confident.

Operation of monetary policy