Moreover, exchange rate changes lead to changes in the domestic price of imported consumption goods and imported production inputs affecting inflation directly. •  Since expectations influence the inflation dynamics, there is a fifth channel that is based on the economic agents’ expectations of the future prospects of the economy and likely stance of the monetary policy.
According to this “expectations channel”, most economic variables are determined in a forward-looking manner and are affected by the expected monetary policy actions. Thus, a consistent, credible, and transparent monetary policy can potentially affect the likely path of the economy by simply affecting expectations.