Considerations of financial stability, however, have ascended the hierarchy of monetary policy objectives in recent years in view of the increasing openness of the Indian economy, financial integration and the possibility of cross border contagion. Accordingly, we believe that regulation, supervision and development of the financial system remain within the legitimate ambit of overall monetary policy broadly interpreted.
There are no problems of moral hazard. 6  BIS central bankers’ speeches  The management of this rather unique system, like that which occurs in the euro area, must take into account two important aspects that distinguish theory from practice. The first is that conditions can be found in which markets do not work as the theory predicts.