the evidence suggests that the degree of accommodation delivered by the federal reserve ’ s securities purchase program is determined primarily by the quantity and mix of securities that the federal reserve holds rather than by the current pace of new purchases. thus, even with the end of net new purchases, maintaining our holdings of these securities should continue to put downward pressure on market interest rates and foster more accommodative financial conditions than would otherwise be the case. it is worth emphasizing that our program involved purchases of securities, not government spending, and, as i will discuss later, when the macroeconomic circumstances call for it, we will unwind those purchases. in the meantime, interest on those securities is remitted to the u. s. treasury. when we began this program, we certainly did not expect it to be a panacea for the country ’ s economic problems. however, as the expansion weakened last summer, developments with respect to both components of our dual mandate implied that additional monetary accommodation was needed. in that context, we believed that the program would both help reduce the risk of deflation that had emerged and provide a needed boost to faltering economic activity and job creation. the experience to date with the round of securities purchases that just ended suggests that the program had the intended effects of reducing the risk of deflation and shoring up economic activity. in the months following the august announcement of our policy of reinvesting maturing and redeemed securities and our signal that we were considering more purchases, inflation compensation as measured in the market for inflation - indexed securities rose from low to more normal levels, suggesting that the perceived risks of deflation had receded markedly. this was a significant achievement, as we know from the japanese experience that protracted deflation can be quite costly in terms of weaker economic growth. with respect to employment, our expectations were relatively modest ; estimates made in the autumn suggested that the additional purchases could boost employment by about 700, 000 jobs over two years, or about 30, 000 extra jobs per month. 4 even including the disappointing readings for may and june, which reflected in part the temporary factors discussed earlier, private payroll gains have averaged 160, 000 per month in the first half of 2011, compared with average increases of only about 80, 000 private jobs per month from may to august 2010. not all of the step - up in hiring was necessarily the result of the asset purchase program, but the comparison is consistent with our expectations for employment gains. of course,

on nri rupee deposits, interest rates in the last couple of years have been in line with interest rates on deposits by residents, and are currently even lower than domestic interest rates. so far as other non - debt creating inflows ( i. e., foreign direct investment, portfolio investment or remittances ) are concerned, such inflows by their very nature are commercial in nature and enjoy the same returns and risks, including exchange rate risk, as any other form of domestic investment or remittance by residents. the cost to the country of such flows is the same whether they are added to reserves or are matched by equivalent foreign currency outflow on account of higher imports or investments abroad by residents. on the whole, under present conditions, it seems that the “ cost ” of additional reserves is really a non - issue from a broader macro - economic point of view. indian interest rates have come down substantially in the last three or four years. they are, however, still higher than those prevailing in the u. s., europe, u. k. or japan. this provides an “ arbitrage ” opportunity to holder of liquid assets abroad, who may take advantage of higher domestic interest rates in india leading to a possible short - term upsurge in capital flows. however, there are several considerations, which indicate that “ arbitrage ” per se is unlikely to have been a primary factor in influencing remittances or investment decisions by nris or foreign entities in the recent period. among these are : · the minimum period of deposits by nris in indian rupees is now one year, and the interest rate on such deposits is subject to a ceiling rate of 2. 5 per cent over libor. this is broadly in line with one - year forward premium on the dollar in the indian market ( interest rates on dollar deposits by nris are actually below libor ). · outside of nri deposits, investments by foreign institutional investors ( fiis ) in debt funds is subject to an overall cap of only $ 1 billion in the aggregate. in other words, the possibility of arbitrage by fiis in respect of pure debt funds is limited to this low figure of $ 1 billion ( excluding investments in a mix of equity and debt funds ). · interest rates and yields on liquid securities are highly variable abroad as well as in india, and the differential between the two rates can change very sharply within a short time depending on market expectations.