The econometric evidence produced by the Third Working Group on Money Supply (1998) indicated that output response to policy operating through the interest rate was gaining strength. Similarly, the impact of an expansionary monetary policy on inflation was found to be stronger through interest rates than the exchange rate, given the relatively limited openness of the economy.
Strategies and Tactics There has been a shift in strategic objective, necessitated by deregulation and liberalization of the financial markets combined with increasing openness of the economy. The estimated income elasticity of demand for money which had exhibited a clearly decreasing trend in the earlier part of the reform period showed a sharp turning point in 1996-97 resulting in an increasing trend thereafter.