With these four rate cuts, the National Bank reduced the target range for the three-month Libor rate by a total of 1.75 percentage points in 2001. Every time it lowered its interest rate – except on 24 September – the National Bank informed the markets that the three-month Libor rate would be kept in the middle of the target range for the time being. Since the markets had been anticipating a downtrend in interest rates since the beginning of the year, this meant that the National Bank had to let short-term repo rates climb temporarily. This was particularly the case in March, September and November, when there was the growing expectation that rates would be adjusted – possibly even ahead of schedule. In these cases, however, the National Bank was willing to make use of the flexibility offered by the target range and let the three-month Libor temporarily slip considerably below the middle of the applicable target range.
