Assessments of risk may well be affected by developments in the current account. In August, we projected a reasonably rapid fall in the current account deficit over the next couple of years. Our present projections have the already-high deficit remaining high for rather longer, as a result of the further deterioration in the world economy. But as I have observed many times before, these things that affect the mix of interest rates and the exchange rate are outside our control, and we do not try to influence that mix. What we can influence is the level of monetary conditions, and we will seek to keep the level of conditions appropriate to ensure that inflation is under control whatever the mix.
Events occur and circumstances change quickly and without warning.
As well, we continue to believe that there are advantages in allowing financial markets considerable scope to adjust monetary conditions as events unfold. The flow of emerging news is continuous, whereas formal projections by the Bank are made only once a quarter. In releasing our August Statement , I mentioned that we had, over the previous three months, sanctioned rather more divergence between actual monetary conditions and the level indicated as appropriate in May than had been our custom previously. I suggested that that degree of divergence was likely to be unusual, and was the result of the very considerable deterioration in the world economy over that three month period. The same comment can be made about the most recent three months.