23 July 2007

1. At its meeting on 23 July 2007, the Monetary Council reviewed the latest economic and financial developments and voted to maintain the central bank base rate at 7.75%.

2.  In the Council’s judgement, inflation developments over the past few months have been broadly in line with the projection in the May issue of the Bank’s Quarterly Report on Inflation and the 3% medium-term target for inflation. After eliminating the effects of tax changes, core inflation –  the best measure of underlying inflation developments – slowed significantly in the second quarter, although the June outturn showed some increase. In the Council’s view, the risk that inflation expectations could depart sharply from the inflation target has recently eased considerably.

      The latest data point to a continued slowdown in economic activity. Private sector gross nominal wage growth continues to be stronger than productivity gains, even after eliminating the distortions caused by recent changes in the regulatory environment. But uncertainties remain regarding the interpretation of labour market data. There is no single indicator of wage developments which could form the basis for a well-informed assessment of inflationary pressure arising on the cost side.

      The Council believes there is room for further reductions in the central bank base rate in the future. However, there remains considerable uncertainty around economic developments at home and internationally, which requires a cautious and gradualist strategy of interest rate cuts.

3.  The abridged minutes of today’s Council meeting will be published at 2 p.m. on 17 August 2007.


Monetary Council