Financial innovation Much of the development in the financial sector internationally over the past couple of decades or so owes much to the open spirit of financial innovation. The recent turn of events, I would say, can be attributed more to the way the financial industry functions, given the underlying regulatory and the incentive structures, rather than on financial innovation, per se.
The medium-term orientation of our monetary policy strategy and our aversion to fine-tuning of short-term developments in prices and real variables has helped to provide a firm compass while the economy was sailing through the uncharted turbulent waters of 1999 and subsequent years. It deflected the risk that, amidst exceptional uncertainties, the central bank may itself become an additional source of noise.