Thirdly, an overvalued real exchange rate is damaging for the competitiveness of traded goods industries and discourages private investment in these industries, which in turn retards long term economic growth and development, as a large volume of research, including research by IMF staff, has demonstrated.
The approach that we have adopted at the BOU is to dampen short term volatility in the nominal exchange rate through sterilized intervention in the interbank foreign exchange market; i.e. sales or purchases of foreign exchange accompanied by secondary market operations to keep the stance of monetary policy (the interest rate) unchanged.