On the one hand, higher interest rates may be required to dampen an investment boom. On the other, lower interest rates may be needed to moderate the inflow of short-term speculative funds. In these circumstances, monetary policy needs assistance from fiscal policy: a budget surplus may be needed to curb domestic demand, and to provide the financial resources to sterilise the foreign exchange inflow.
Flexibility is also needed in the area of exchange rate management. I do not mean that countries should always adopt freely floating exchange rates. That would not necessarily be an optimum policy in emerging markets, whose financial systems are not fully developed. For example, Hong Kong and Argentina have successfully operated a currency board type system for the past several years.