financial stability in addition to the traditional mandate of monetary stability ( watanagase, 2012 ). 26 in south africa, the prudential regulation and supervision of banks assisted and complemented the central bank in its pursuit of financial system stability. similarly, the central bank of brazil actively used macroprudential measures to deal with emerging financial risks, particularly from excess capital flows in the economy. according to a bis survey ( 2010 ), emes significantly outnumbered advanced economies as users of some type of macroprudential instrument. 27 global financial crisis highlighted the importance of using a broader set of instruments for financial stability. in this regard, most central banks in emes where monetary policy and prudential supervision were within their purview seem to have been better equipped to address financial stability issues as compared to advanced economies. now, i turn specifically to our experience in india. financial stability : indian framework the core functions of the reserve bank of india ( rbi ) are enshrined in the preamble to the reserve bank of india act, 1934 as, “ to regulate the issue of bank notes and keeping of reserves with a view to securing monetary stability in india and generally to operate the currency and credit system of the country to its advantage ”. in addition, the rbi is also microprudential regulator as the banking regulation act, 1949 entrusts it with the power to regulate and supervise commercial banks and co - operative banks. the rbi also regulates de gregorio, jose ( 2011 ), “ price and financial stability in modern central banking ”, keynote speech, governor of the central bank of chile, at the joint latin american and caribbean economic association ( lacea ) - latin american chapter of the econometric society ( lames ) conference 2011, university adolfo ibanez, santiago, november 11. flexible inflation targeting ( it ) framework which requires achievement of the desired inflation target over the medium - term makes it easier for central banks to look not only for price stability, but also consider other variables, such as the output gap or the exchange rate. in a sense, flexible it also implies a departure from the corner solutions of the ‘ impossibility trinity ’ of fixed exchange rates, independent monetary policy and perfect capital mobility. watanagase tarisa ( 2012 ), remarks at monetary policy workshop on strengthening macroprudential frameworks organised by imf regional office for asia and pacific ( oap ) march 22 – 23, tokyo, japan. bank for

prices. way ahead 28. i have used the sequence of events between may 22 and the first week of august 2013 to illustrate the risks from exit from unconventional monetary policies. some calm appears to have been restored to markets especially, after the decision by the federal reserve, on september 18, not to commence tapering. but, what is clear is that the commencement of tapering has only been postponed. markets have already begun speculating when the fed would start the tapering. will it be october? will it be december? or would the fed wait till early 2014? as these uncertainties persist, volatility may return to markets. the on - going fiscal face - off in the us, which also carries the risk of us defaulting on its debt has introduced another set of uncertainties for the global financial markets and growth outlook in the us and other countries. there is, hence, a need to look ahead and chalk out a plan of action, ideally a global plan of action, to address the risks. 29. the recent events serves as a useful lesson in caution to both those who are contemplating exiting and those who are likely to be on the receiving end of any spillovers. fortunately, the incentives of both groups at a broader level are well aligned. neither would like to see a disorderly exit. it is, however, unlikely that any one country ’ s policy needs will suit others since economic conditions differ across countries and their business cycles are not perfectly aligned. different countries currently employing unconventional monetary policy will no doubt want to exit at different times. emes and others who are affected by the exits, in many cases, will also find it does not meet their immediate needs. to some extent, however, the lack of synchronicity may be helpful, allowing for some offset, so everyone is not moving in the same direction at once. 30. history does have examples of past exits from accommodative monetary policy which could be instructive to review. after the 1990 – 91 crisis, the fed hiked rates in february 1994. the hike was largely unanticipated by markets, policy rates were raised sharply within a relatively short span of time. resultantly, there was a sharp and sudden rise in bond yields with significant international spillover effects on global financial markets. in contrast, in 2004, the fed ’ s exit from accommodative monetary policy was largely anticipated. also, the pace of bis central bankers ’ speeches increase was gradual