Level of Reserves and External Debt There has always been a continuous but inconclusive discussion on the optimum level of reserves. Traditionally, however, the adequacy of reserves has been mainly linked to import requirements. Incidentally, recent experience has shown that countries which were holding large levels of reserves did not necessarily escape the crisis.
As the real economy improves due to such stimulus, the actual inflation rate will rise, which will lead to a further rise in inflation expectations: such a virtuous cycle can be expected to operate. Is such a mechanism actually at work? So far, the QQE has been steadily exerting its intended effects.