role regarding cross - border capital flows ”, imf, november, 2010. bis central bankers ’ speeches intervention is now justified if there is major veering away of the currency from its fundamental value. the limitations of individual country - specific measures are being articulated. the imf policy note seeks to address the issue through development of rules of the game for global capital flows and in fostering multilateral, non - discriminatory, approaches that look to the interest of both the originators and recipients of capital. is such a framework possible? i am not sure but till then countries impacted by this would need to continue to find their answers. it is increasingly being recognised that it is gross flows that determine risk exposures and are therefore important for financial stability. netting of crosstemporal flows does not capture the real impact of gross capital flows on exchange rate as well as asset price impacts. capital control measures are being designed more innovatively for effectiveness. derivative transactions are increasingly being specifically targeted and many countries are resorting to enhanced supervision and data reporting to monitor the build up of currency positions in the books of banks. the issue of capital flows is getting factored in the macroprudential framework being envisaged for financial institutions globally. procyclicality of capital flows and of wholesale market funding can engender vulnerabilities. prudential measures to address asset market volatility such as risk weights, provisioning, ltv ratios, margin requirements and the build up of foreign currency liabilities in the financial system are also considered as legitimate instruments to respond to destabilising capital flows. there is greater recognition of the insurance needs of countries. while it was commonly argued before the crisis that many asian countries were incurring avoidable costs in accumulating large foreign currency reserves, it has been widely noted that countries with large reserves fared relatively well during the crisis. forex reserves have provided self - insurance during the global liquidity crisis. those countries that built up precautionary reserve holding were able to avoid large depreciation in the “ panic of 2008 ” ( obstfeld, shambaug, and taylor, 2009 ). the argument for compositional irrelevance of capital flows stands questioned. a recent imf paper 2 has concluded that the appreciation effect of private flows differs by type of flow. portfolio investments, which are more volatile, have the highest appreciation effect, followed by fdi and bank loans. since these flows are potentially

formulation of monetary policy, it is considered good housekeeping to evaluate the balance of risks. there are several positive energies that are helping to shape the vision of india's future over the next few decades. the playout of these forces will condition the setting of future monetary policy. 3 / 8 bis - central bankers'speeches first, there is a traditional advantage that is likely to continue working in favour of india's growth prospects. the development process has been predominantly driven by capital accumulation, which makes investment the main lever of growth. the investment rate peaked at close to 40 per cent of gdp in 2010 - 11 but moderated unevenly thereafter until 2020 - 21. during 2021 - 23, however, it has stabilised around 31. 2 per cent and is showing signs of acceleration. historically, india's investment has been financed by domestic savings, with households being the prime provider of resources to the rest of the economy. in the period 2021 - 23, the gross domestic saving rate has averaged 30. 7 per cent of gross national disposable income. thus, unlike many countries, india does not have to depend on foreign resources, which play a minor and supplemental role in the growth process. in fact, the mirror image of this phenomenon – the current account gap in the balance of payments – has remained modest at around 1 per cent of gdp in 2023 - 24. this provides insulation to the indian economy from external shocks and imparts viability and strength to the external sector. illustratively, india's gross external debt, which is the accumulation of current account deficits over time, is less than 20 per cent of gdp and almost entirely covered by the level of foreign exchange reserves. debt service, i. e., interest and principal repayments are together less than 7 per cent of current receipts. as regards the supersavers – households – there is evidence of switching from financial saving to physical saving, with the latter being financed by accretions to households'financial liabilities. second, the rising growth trajectory on which india is poised is entrenched by macroeconomic and financial stability. after a long and arduous battle with the upside pressures unleashed by the pandemic and geopolitical conflicts, and exacerbated by sporadic onslaughts of food supply shocks, inflation has fallen back into the tolerance band around the target of 4 per cent. this reflects the cumulative impact of steadfast monetary policy actions and supply management. in fact,