This article covers the three months from October to December 1987. During the period under review, monetary policy was conducted within the context of conflicting concerns created by domestic economic and monetary developments, the sharp fall in world equity prices in October and turbulent exchange markets associated with the global weakness of the dollar. Both interest rates and gilt-edged yields fell during the period, bank base rates by 1½%. However, sterling appreciated significantly, by 3¾% in effective terms, helping to offset the effect of lower interest rates on monetary conditions.
In early October, market concerns were beginning to emerge about the implications for both the external balance and domestic inflation of the strength of domestic demand, the growth of money and credit, and the rate of increase of asset prices. Sterling, however, was strengthening, in particular against the deutschemark. In the short term, this was met by official sales of sterling on the foreign exchange market.
Published on
01 March 1988
Operation of monetary policy