Market-based expectations for short and medium-term inflation have eased slightly, while longer-term inflation expectations remain higher.

The Committee notes that the slow economic recovery will help keep inflation below the midpoint of the target range for this year and next. Unless risks outlined earlier materialise, inflation is expected to be well contained in 2021, before rising to around the midpoint in 2022 and 2023.

Against this backdrop, the MPC decided to keep rates unchanged at 3.5% per annum. Two members of the Committee preferred a 25 basis point cut and three preferred to hold rates at the current level.

The implied policy rate path of the Quarterly Projection Model (QPM) indicates two increases of 25 basis points in the second and third quarters of 2021.

 Monetary policy has eased financial conditions and improved the resilience of households and firms to the economic implications of Covid-19, and continues to be accommodative. The steps taken by the Bank have ensured adequate liquidity in domestic markets. In addition, regulatory relief provided to banks has sustained lending to households and firms.

While monetary policy will continue to support the economic recovery, a faster growth rate depends on implementing prudent macroeconomic policies and structural reforms. Lower administered prices and productivity-adjusted wage settings aligned to projected inflation would also generate important macroeconomic gains. Such steps will enhance the effectiveness of monetary policy and its transmission to the broader economy.