It is the combination of these factors, a large output gap, the absence of any significant underlying price pressures and a still dismal outlook for the global economy, that has given the Bank room to manoeuvre and reduce the repo rate from 12.0 per cent in 2008 to 5.0 per cent in July 2012.
Market expectations and the beginning of normalization have had significant implications for financial flows to emerging economies. Around the world, U.S. monetary accommodation fueled the search for yield through significant portfolio capital inflows to emerging markets. Since 2014, however, these flows have slowed, turning negative in some recent quarters. 5 Furthermore, data-driven U.S. monetary policy has generated financial volatility.