This implies that monetary policy should not be pro-cyclical when the economy is hit by shocks that depreciate the local currency and slow down economic activity. On the contrary, with anchored expectations and credible inflation targets, monetary policy should be rather more counter-cyclical. The other central element of the inflation targeting scheme is exchange rate flexibility.
BIS central bankers’ speeches  7  Conclusion Let me conclude. Excess global liquidity emanating from accommodative monetary policy stance in advanced economies has raised asset prices and imparted greater volatility to capital flows to EMEs. In episodes of liquidity stress, capital account and exchange rate management seem to override the domestic monetary policy objectives of growth-inflation considerations.