When inflation falls below the target and interest rates are correspondingly low, there is little room for conventional monetary policy to respond to negative shocks. When inflation is above target, the erosion of purchasing power becomes significant and uncertainty about future prices makes it hard for households and businesses to make good financial decisions.
Further, the framework has built-in flexibility with respect to the amount of time it takes to return inflation to target after a shock. Years of successful inflation targeting have given the Bank the credibility to use this flexibility during periods of economic stress. A flexible exchange rate is also key to achieving our inflation targets over time.