This is the critical role played by confidence in, and the credibility of, the policy framework. This has both a domestic and an international dimension. Domestically, there is a critical need to win public acceptance of the value of low inflation and public confidence in the determination and ability of the central bank to achieve it.
Internationally, confidence that the policy framework will be adhered to can have a powerful influence on investment inflows and on the exchange rate. These factors are, of course, crucial to monetary policy in any country. But the task of buttressing them is the more challenging in emerging market economies because the track record of commitment is relatively much shorter.