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Financial stability in a world of higher interest rates

Although the recent transition to a higher interest rate climate has not caused any lasting or systemic financial flare ups, it is probably too soon to sound the all-clear. And while a higher interest rate climate in the medium-term will reduce risk-taking in those areas dependent on credit, such as housing, it may not prevent speculative behaviour elsewhere, such as in equity markets. As such, there may be occasions when policymakers need to temporarily lean away from their inflation targets to protect financial stability.

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