Third, while interventions are with the objective of containing volatility in the forex market, intervention over a long period, especially when the exchange rate is moving in one direction, could make interventions less effective. However, a critical question is what would be the impact on expectations about future movements in forex markets if no intervention takes place.
The challenges of intervention and management of expectations will be particularly daunting when financial contagion occurs, since such events are characterised by suddenness, high speed and large magnitudes of unexpected flows, in either direction. The quintessence for a relevant monetary policy is the speed of adjustment of the policy measures to rapidly changing situations.