That is, on the one hand, an increase in the short-term policy interest rates (either as a result of tight monetary policy or of foreign exchange market intervention followed by sterilization) helps to lower inflationary pressures, but may invite a new round of capital inflows by foreign investors in search of higher yields.
Such an increase may also damage exporting sectors through a sharp appreciation of their domestic currencies. On the other hand, a decline in the short-term policy interest rates (either as a result of monetary easing or of unsterilized foreign exchange market intervention) helps exporting sectors through the lower volatility of foreign exchanges and the limited appreciation of their domestic currencies.