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mpc: 10 if it were to do so, the markets would quickly conclude that, other things being equal, a future interest rate rise had become less likely, which would weaken an important source of support for sterling. 37 The Committee debated whether intervention in the foreign exchange markets could usefully be deployed, either with the announcement of the Committee's immediate repo rate decision or subsequently. Those members prepared to contemplate intervention placed some weight on its use as a signal of concerns about the level of the exchange rate ­ a more powerful signal than words alone ­ but most of them concluded that it could be an option only if the Committee decided to leave the repo rate unchanged and, even then, would have to depend on market conditions. Other members thought, first, that it was doubtful whether intervention would be effective as there was little evidence that the market consensus which sustained sterling at its current level was fragile; and that a failed attempt to influence the exchange rate via intervention would damage the Committee's credibility. Second, to the extent that sterling's strength mainly reflected euro weakness, the MPC could do very little about it. Third, the Committee's analysis of the exchange rate could be conveyed via the minutes of the meeting and did not need to be demonstrated via intervention. 38 While views differed on the range of options feasibly available to the Committee, there was broader agreement that, subject to the over-riding objective of achieving the inflation target, it would be preferable to have a lower exchange rate and higher interest rates from the point of view of economic conditions and balance more generally.

The immediate policy decision

39 Some members of the Committee preferred forecast assumptions ­ about the path of the exchange rate and about price-cost margins ­ which would produce a central projection for inflation at the two-year forecast horizon closer to 3% than 2½%. In the short run, inflation would continue to be below target and would be further restrained by the appreciation in sterling, which would more than offset the increase in oil prices. But it was vital to be forward-looking. Given the medium-term outlook, policy needed to be tighter, and in particular domestic demand growth needed to be reined back. The choice was, therefore, for an immediate increase in the repo rate of 25 basis points or 50 basis points. Another view accepted the best collective judgment of the central projection, but regarded the balance of risks to inflation as clearly on the upside, on account of the possibility of a faster depreciation in the exchange rate and stronger domestic demand growth than assumed in the central projection. On this view too, the choice was between a 25 basis point and a 50 basis point increase. There was, however, more than one path for interest rates that would enable the Committee to achieve