What is independent monetary policy

Advantages: First, in a freely-floating exchange rate, the exchange rate must move down or up to correct a payments imbalance. Second, monetary policy can be used exclusively to achieve domestic policy objectives like the control of inflation. This is known as an 'independent' monetary policy.

Disadvantages: First, in the short run, exchange rates are very vulnerable to speculative capital or 'hot money' movements out or into of currencies. Just like a fixed exchange rate a floating exchange rate can be undervalued or overvalued that means it fails to reflect correctly the trading competitiveness of the country's services and goods. Second, by causing prices of imported food, energy, raw materials and manufactured goods to rise, a falling floating exchange rate contributes to cost-push inflation.