In a fragile environment, care has to be exercised not to take rash action that would, in fact, trigger stress. However correct and necessary they are in terms of ensuring a level playing field for competition, the decisions to be taken therefore have to be examined in terms of their systemic relevance in order to prevent an overreaction.
This can be seen by looking at the declining levels of policy interest rates below what different Taylor rules dictate since 2003. 7 Another response to extraordinary monetary easing in advanced countries has been acceleration of FX reserve accumulation, something which has been significant in emerging economies.