While actions of a central bank could influence all these variables, the final outcome is determined by the response of financial markets and institutions to the central bank action. I will briefly survey the international experience before turning to our own experience.
The country does not have restrictions on inward capital flows and these inflows have thus far been effective in adequately financing the deficit on the current account of the balance of payments. The country’s reliance on portfolio inflows makes it difficult to impose measures that may dry up this source of funding.