However, there is a qualitative difference, since the RBI has some flexibility now in respect of the extent of its support to Government borrowing programme. With increasing market orientation of the financial structure and international capital flows, monetary policy responds to developments on an ongoing basis. In an administered interest rate and exchange rate regime, the quantity variables dominated and transmitted monetary policy impulses.
However, external and financial sector reforms have since enhanced the sensitiveness of quantity variables to their market determined price, i.e. interest rate and exchange rate. It must be recognised that in recent times, the emphasis has also been on closely monitoring different indicators apart from relying on the intermediate target.