prices and monsoon conditions for india. ” 1 the capital account liberalization primarily aims at liberalizing controls that hinder the international integration and diversification of domestic savings in a portfolio of home assets and foreign assets and allows agents to reap the advantages of diversification of assets in the financial and real sector. however, the benefits of capital mobility come with certain risks which should be categorized and managed through a combination of administrative measures, gradual opening up of prudential restrictions and safeguards to contain these risks. the discussion on capital flows and monetary policy inevitably begins with the well - known “ trilemma ” or the impossible trinity in the sense that a country can choose no more than two of the following three features of its policy regime : ( 1 ) free capital mobility across borders, ( 2 ) a fixed exchange rate, and an independent monetary policy. various combinations of these features have dominated world monetary arrangements in different eras. the question of how developing and emerging - market countries like ours should resolve the trilemma is very crucial. at best a medium - term goal of achieving free capital mobility could be set with measured steps and optimal control. recent policy initiatives india adopted a gradualist approach while initiating a process of gradual capital account liberalisation in the early 1990s and treated it as a process rather than an event. in recent past, there has seen significant changes in the external sector policy of the reserve bank. the department concerned of the reserve bank has been rechristened from the exchange control department to foreign exchange department, highlighting the change in the intent and content of the policy framework. let me assure you that this change is not just a matter of semantics but is reflective of the changed mind - set. the focus of the measures has been to dismantle controls and provide an enabling environment to all entities engaged in external transactions. the current approach to liberalisation has been characterized by greater transparency, data monitoring and information dissemination and to move away from micro - management of foreign exchange transactions to macro management of forex flows and forex market. the emphasis of the reserve bank has been to ensure that procedural formalities are minimised so that exporters and others are able to concentrate on their core activity rather than engaging in avoidable paper work, while ensuring observance of know - your - customer ( kyc ) guidelines. the details of the various initiatives taken by the reserve bank will be discussed later by other speakers. let me, for the sake of completeness, present a quick run -

c koep, m leibbrandt, h mcewan and i woolard, ‘ employment and inequality outcomes in south africa ’, southern africa labour and development research unit and school of economics : university of cape town, 2010. another part of the failing job creation machine is simply weaker real economic growth compared to the 2000s, when job creation was quite strong. this should not, however, lead us down the path of grasping at another seemingly ‘ easy ’ answer. higher inflation will not give us higher sustainable growth. instead, higher inflation undermines short - run growth by increasing interest rates on borrowing, affecting consumers ’ buying on credit and business owners who want to use credit to invest. higher interest costs reduce short - run cash flow, reducing all future consumption spending. while surprise inflation reduces the real value of the existing stock of debt owed, the trade - off is lower economic growth in subsequent years. the short - run benefit of a surprise lower interest rate is transformed by higher inflation into a long - run cost to growth. when inflation is higher than that of our trading partners, we suffer a continuous loss of competitiveness. high inflation overall also generally means higher inflation for poorer and less - skilled south africans than for the wealthy. this increases inequality further and worsens the already low standard of living for those households, making them costlier to employ. for a few years before the gfc in 2008, the relationship between growth and employment was better – if economic activity grew by 1 %, employment grew by around 0. 62 %. but since then, up to 2018, each percentage point improvement in growth only gives us 0. 37 % more jobs. our low employment problem overlaps entirely with our low growth problem. in this context, the best a central bank can do is stabilise unemployment at the rate consistent with price stability. if a central bank attempts to get unemployment below the nairu, the result will be larger quantities of inflation but only small and temporary quantities of jobs as the supply curve becomes more vertical. the same is true for economic growth. 11 assuming that most of our unemployment problem is structural, are we at least sure that the residual cyclical unemployment is being reduced by monetary policy? is a dual mandate better at addressing these cyclical drivers? at the sarb, we use an alternative measure of economic activity to the nairu for understanding where the economy is relative to its tipping point into more inflation or into deflation. this is the output gap, or the