Of course the depreciation cannot be an excuse for allowing inflation to rise to a permanently higher rate. So, to the extent that the central bank’s objective is stated simply in terms of an inflation target, this clearly still has to be met. The issue is: “over what time horizon”?
Knowing that any change in interest rates will BIS Review 106/2000  4  have an effect on activity (after all, this is one of the principal channels of monetary policy transmission), how much “damage” should be done to activity to offset not only the extra stimulus to activity from the depreciation, but the cost push effects as the effects of the depreciation feed through to prices?