Under the current dispensation, the effectiveness of monetary policy is often constrained by fiscal surprises. In particular, monetary financing of large fiscal deficits, which averaged 7.5 and 5.6 per cent of GDP annually in the 1980s and 1990s, respectively, resulted in the over-burdening of monetary policy and its effectiveness.
Our historical experience tells us that there is no one-size-fits-all solution to problems associated with volatile capital flows.