Capital Flows and Central Banking : The Indian Experience
Because of the steady liberalization of the capital account since the early 1990s and increased financial integration of the Indian economy, capital flows to India have moved in tandem with broad global trends. This paper looks at the extent to whi...
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/02/25932613/capital-flows-central-banking-indian-experience http://hdl.handle.net/10986/23895 |
| Summary: | Because of the steady liberalization of
the capital account since the early 1990s and increased
financial integration of the Indian economy, capital flows
to India have moved in tandem with broad global trends. This
paper looks at the extent to which India’s monetary policy
has been affected by the ebbs and flows of the capital it
receives. For ease of narration, the paper divides the
post-liberalization period since the early 1990s into three
phases--early 1990s to early 2000s, a period of increasing
but still modest capital flows; early 2000s to 2007-08, a
period of capital flow surge when inflows increased rapidly;
and a period of sudden stops and volatility, starting in
2008-09, when capital flows reversed in the post-Lehman
Brothers collapse, and again during the tapering tantrum of
2013. The paper shows that although ordinarily domestic
policy imperatives, such as price stability and growth, have
taken precedence over issues related to exchange rate or
capital flows in policy rate setting, some accommodation in
money supply is evident during the surge and stop episodes.
The broad policy mix to handle large increases or reversals
of capital flows has included reserve management, liquidity
management, and capital flow measures. |
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