As monetary policymakers, we choose to have a restrictive stance when our goal is to reduce inflation to our target, and to have an accommodative stance when we need to raise inflation to the target.

The neutral rate can be a useful guide for policymakers, but its usefulness is also limited. As I have highlighted before, it has a wide range of plausible values and it can change over time. So our policy decisions are guided by a comprehensive analysis of a wide range of economic data which is essential to ensure consistency between our view of the implied stance and economic developments. It is also why we need to continue with our data-dependent and meeting-by-meeting approach.

The recent high inflation period required a forceful response to ensure inflation would return to target in a timely manner. In meetings during 2022 and 2023, we raised our key interest rates by a cumulative four and a half percentage points. In effect, we moved the monetary policy stance into substantially restrictive territory; our goal was to make it sufficiently restrictive to combat the price pressures we faced.