Finally, the monetary authorities are facing very complex challenges, since traditionally oil prices were treated as “shocks” and food prices are also treated as some sort of a “shock”. It is now realised by the monetary authorities, in advanced economies also, that food prices have significant impact on inflation-expectations, which are vital for the conduct of monetary policy.
The gradual approach was required to give time to an inter-bank foreign currency market to develop, including the creation of financial instruments, traded and over the counter, to hedge against the exchange rate risk.