3Q 2023 Market and Economic Overview
Think of a bathtub with the taps open, filling the tub. At the same me, the drain has the stopper removed so that water is simultaneously running into and out of the tub. Whether the tub is slowly filling with water or slowly draining depends on the difference in the rates of water-in and water-out. The rate at which the water is flowing in can be regarded as the rate of creaon of credit which is used to deliver and purchase goods and services. The rate at which it flows out is the cost of creaon of that credit: interest rates, which act as a counterweight and a drag on economic acvity. The net change in the level of water in the tub is then the change in Gross Domesc Product, GDP. One of the roles of a Central Bank is to manage that rate of change such that it engenders an environment of sustainable long-term economic growth.
