In mid 2011, a very sharp fall in the nominal exchange rate against the dollar, by 18 percent in three months, made a large contribution to the acceleration of inflation in the third quarter of that year; this is not an experience we wish to repeat. Secondly, exchange rate volatility is very disruptive for firms which have to transact in foreign exchange markets.
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.