Professor Michael McMahon:

I do not mean to sound like the nasty Central Bank-type person but the choice between raising rates to look tough on inflation and cutting rates to help people is not really on the table for central banks right now. Cutting rates to help people would not actually feed through to them. The exchange rate impact of loosening or not tightening enough self-fuels inflation, which we know hurts everybody. It also makes the problem they subsequently have to deal with much bigger. This is because while these may be supply driven shocks, they are also typically imported. If you have a big depreciation of your currency, that immediately hits everybody's purchasing power. It builds more inflation into the system making the future job of the Central Bank more difficult. It is an unfair suggestion to say they could cut rates and help people. However, I think the Deputy is right to say that it is difficult-----