Exchange rate dynamics have significant effects on the ultimate goal of price stability and hence on monetary policy decisions. •  The impact effects of external vulnerabilities on the domestic economy are channelled through three main sources – first, with a commodity-dependent export base, the economy is highly vulnerable to negative terms of trade shocks.
Second, the increased levels of outflows in the service and income accounts due to the dividends and profit repatriation by large multinational companies in the energy, mining and telecoms sectors pose significant risks to reserves and in the process constrains out ability to effectively deal with shocks.