A central bank’s core mandate is to stabilise prices, generally by targeting a specific rate of inflation and controlling the growth of money supply. It does so by adjusting its policy rate and using other tools such as the exchange-rate mechanism, direct asset purchases and special liquidity injections to expand credit markets when they are constrained. These tools also help to keep the economy growing, and they allow the central bank to respond quickly when needed. A key element in making these judgments is a detailed working knowledge of financial markets and institutions, which central banks acquire through hands-on interaction with their supervision and regulation functions.
Decisions about whether to raise, maintain or lower interest rates are made eight pre-announced times a year by the Bank’s Monetary Policy Committee (MPRC). It is a committee of the Governor and Senior Deputy Governor with the addition of four Deputy Governors and ten members of the Governing Council.
In the weeks leading up to each decision, the MPRC receives a briefing by the Bank’s economic departments on the global economy, commodity prices and inflation. The MPRC then meets to discuss and consider staff’s inflation projection, which includes a range of scenarios based on the potential impact of raising, maintaining or lowering the policy rate on the domestic economy.
A summary of the MPRC’s deliberations is published two weeks after each decision. It highlights where opinions converged and diverged, including the areas of discussion that generated the most debate.