Our projection is based on a markedly easier track for monetary conditions than we thought was appropriate three months ago. Beyond that, we see scope for some further easing, with the MCI levelling off at around -225 in the second half 1999, before firming gradually in 2000. But as always, our forward track for monetary conditions is highly conditional, and will be reviewed in the light of emerging data. As has often happened in the past, financial markets have reached very much the same conclusion as the Bank has, so that monetary conditions in recent days have been very close to the level suggested in today's Statement . This confirms our view that the better informed financial markets are about our likely reactions to new information, the greater the probability that monetary conditions will evolve in a way consistent with our policy objectives.
Uncertainties Looking ahead, there are plenty of uncertainties.
For example, future revisions of the March quarter GDP number may well show that output fell by rather less than the preliminary figure suggested and that, as a result, the output gap is smaller than now seems possible. Confidence may continue picking up more strongly than now expected, perhaps as a result of the sharp fall in interest rates recently. In that event, importers and retailers may well try to pass on to consumers to a greater extent than now expected the increased New Zealand dollar prices they have been paying as a result of the depreciation in the exchange rate. From a policy point of view, it is quite a tricky call. Our sense is that the world economic situation is fragile.