##aligned from fundamentals, the intervention may be successful in realigning the currency. if not, sterilized intervention will most likely be ineffective, and for this reason is important to have a strong presumption that the currency has moved away from fundamentals before intervening. 3 in addition, foreign exchange intervention allows authorities to increase the international liquidity position of the economy so as to insure against a future curtailment of capital inflows. naturally, a booming economy, with a widening current account deficit, persistent appreciation and low inflation may need some stabilization if the expansion is deemed to be unsustainable. fiscal policy could help, but unfortunately it is not always available, especially in countries with a weak fiscal history. another tool, with weak evidence supporting its for further discussion on the use of monetary policy to affect asset prices, in particular in the context of inflation targeting in open economies, see de gregorio ( 2010b ). in economies following inflation targets is important that the intervention be coherent with the inflation outlook to avoid undermining credibility. intervention can also be part of unconventional policies to reach the inflation target when interest rates are close to the zero lower bound. effectiveness, is capital controls. 4 regardless of whether they are effective or not, they may hide policy distortions. for example, policymakers thinking that capital controls are effective at insulating the economy from capital inflows, may tighten monetary policy to slowdown the expansion, but instead induce further inflows that look for loopholes to avoid the controls. for this reason i think that a more promising avenue is to look at the impact of capital inflows on financial stability. indeed, many of the booms in asset prices and activity that come with capital inflows are caused and amplified in the financial system. capital inflows and financial stability from the macro point of view, i have emphasized currency risks associated to capital inflows. a flexible exchange rate should help mitigate this risk. in addition, the development of the foreign exchange derivatives market should allow private agents to hedge against currency risk. in addition, capital inflows may be behind the development of bubbles in domestic asset prices, and there are also macro tools to deal with them. however, there are other risks that must be considered, which have implications on macro prudential regulation. note that these risks may be relevant even when net capital flows are limited. therefore, from the standpoint of financial stability, gross flows become

##ies ( ccp ) and ( b ) mandating reporting of otc derivatives trades to designated trade repositories. against this backdrop, it must be pointed out that, over the years, the bank had taken several measures to improve the transparency and efficiency of otc derivatives market. some of the major ones are : 1. the bank had instituted mandatory reporting system for the otc derivative transactions. the banks have been mandated to report the inter - bank irs trade data on - line to ccil since august 2007. the client level trade data are also now collected from the banks. in case of fx derivatives, the ad category - 1 banks report the aggregate details of transactions in forward contracts, currency swaps and currency options to the bank at fixed periodicity. the bank uses the trade level and aggregate level data to monitor the overall market wide exposure as well as the exposure level of the individual market makers along with their exposures to specific derivative instruments. 2. the bank has facilitated greater use of central clearing counterparty ( ccp ) based clearing and settlement system for otc derivative transactions which helps in reducing the risk of financial loss through counterparty default and provides capital relief. currently, the transactions relating to fx forward are settled on guaranteed basis through ccil. the process for introduction of guaranteed settlement of irs transactions is underway. 3. thirdly, the level of transparency has been improved by way of increased dissemination of price and volume information. the price and volume data improves the risk management efficiency of the market participants and enhances the pricediscovery function. moreover, it offers greater degree of protection to the unsophisticated class of end - users. the roadmap for otc derivatives in india a number of initiatives for the further development of otc derivatives in india have been initiated. some of the major ones are : new products : the product on anvil is the credit default swap ( cds ). the draft guidelines on cds were placed on rbi ’ s website in february 2011 for public comments. cds on corporate bonds issued by single legal residential entities have been proposed, with the underlying bonds to be listed ones, but with two exceptions : unlisted but rated bonds of infrastructure companies and unlisted / unrated bonds issued by the spvs set up by infrastructure companies. the final guidelines are expected soon. bis central bankers ’ speeches trade repository : ccil has been acting as the trade repository for irs transactions since august 2007. there is no such trade repository structure