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mpc: 7 buoyant in the early part of 2000. The prospects for the euro area had improved, particularly in Germany and France, while East Asia had recovered rapidly from its downturn, and there were also some signs of a recovery in Japan. Official interest rates had risen in the previous month in most OECD economies, and market rates suggested expectations of further increases in official rates later in the year, for instance in the US and the euro area. The prospects for inflation in the global economy would depend not only on the strength of demand growth and the reaction of monetary policy, but also on the size and distribution of world productive capacity relative to demand. 26 The strength of the US economy, and uncertainty about the balance between domestic demand and supply in that country, remained important factors in any assessment of the world economy. The target Federal funds rate had been raised again in March, for the second time this year, and while there had been considerable volatility in the various US equity price indices, on balance these were now not much changed from their levels at the start of the year. To some members this suggested an increased chance of a gradual slowdown in US growth closer to trend.

Other considerations

27 Although a majority of market participants did not expect the Committee to move rates this month, an increase in the Bank's repo rate during Q2 was widely forecast. The Committee had agreed in March, when a change in the repo rate would have been more of a surprise, that this of itself should not be a constraint on the Committee's decision, and that remained the case. The Committee also agreed that, while the May Inflation Report provided an opportunity to analyse the latest developments in more detail, and to set out the reasons for any change in official rates at greater length, that also did not preclude a change in rates this month. 28 The Committee discussed a suggestion that it should intervene in the foreign exchange markets. The argument advanced in favour was that this could, if successful, not only be profitable but also improve the balance in the economy between the internationally exposed sectors of the economy and other sectors which were growing very rapidly, reducing the risk that the Committee would need to adjust monetary policy sharply later. Some members were not at all attracted to this view, believing that intervention would be unsuccessful and would cause confusion in the markets about the Committee's reaction function and its priorities. Some others thought that intervention in the foreign exchange market was unlikely to be successful at present, though they did not wish to rule out the