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"The Bank of England can control the policy rate, but it has no control over all other rates – and the policy rate is irrelevant to the real economy".
However, there is disagreement about the level to which the policy rate should be hiked.
Set the policy rate above the natural rate and the economy tips into depression.
Monetary-policy hawks can reassure themselves that the policy rate is not too low.
"As a result, the B.O.J. is now more likely than not to cut the policy rate to 0.10percentthisis Friday, in addition to implementing liquidity provision measures".
There was a hike from 3%to4.75%5% in 2009-10, followed by a retreat in 2012; the policy rate is now 2.5%.
But then Australian interest rates were generally relatively high before the crisis — the policy rate stayed above 5percentt from 2003 on, peaking at 7.25percentt in 2008.
The Economist Intelligence Unit does not expect the Bank to raise rates until late in 2011, with the policy rate ending the year at 1%.
They also make a plea for not thinking of the policy rate as the only tool of monetary policy, even in more normal times.
Because the policy rate cannot go negative, plausible paths of the future rate are either flat (Fed on hold) or rising (Fed hikes).
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With interest rates high the policy rate now stands at 10.75%—Brazil has attracted lots of attention from yield-hungry investors.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com