In the seventh Mais Lecture the Governor discusses the effects and limitations of the various instruments available to the authorities in the operation of monetary policy.
There are practical limits to the extent to which reliance can be placed on government funding policy or foreign exchange market intervention, as well as limits to their effectiveness. In practice the authorities are largely dependent on a single instrument-the short-term interest rate. But understanding of the various ways in which interest rates influence economic behaviour is itself limited. The precise effects of these influences are uncertain and can vary with the circumstances prevailing at the time. The authorities are, therefore, circumscribed in their ability to achieve selective effects on particular aspects of the economy. From the point of view of monetary policy, however, it is the aggregate effects on the wider economy that are important, and there is no doubt about the direction of these effects, nor that they are powerful.
The instruments of monetary policy - The seventh Mais Lecture