Chasing short term inflation as your one and only gaol for setting interest rates is not smart enough.
Last year inflation was rising due to ridiculous speculation on the price of oil (and pretty much no other reason). This was bound to burn itself out (pardon the pun). So its hard to see how making money itself more expensive was going to bring down inflation. Base rates had little, is any, baring on the oil price speculation.
However, at the same time the first seeds of the current crisis were clearly visible, yet the BoE was still raising interest rates - all that seems to have achieve is giving them more room (but not enough) to cut rates since.
I agree that longer-term consequences are rarely thought through properly.
ReplyDeleteIt's arguable however that interest rates were kept far too low prior for too long prior to the rises which stimulated the credit binge to excess through those cheap rates and therefore the reaction *was* necessary at the time.
Anyhoo, I've added your blog to my Reading List of local comment, so you may like to advertise your presence by completing my survey here.
I'd also appreciate it if you could email me - my address is oranjepan[at]hotmail[dot]co[dot]uk.
Thanks.