Before the burst of the bubble this time, the majority view was that aggressive policy rate reductions enabled us to stave off a sharp and serious economic contraction. 31 Such optimistic view was challenged by a severe economic contraction in the recent global financial crisis. Such aggressive policy rate reductions are certainly needed to mitigate the economic downturn.
In the current environment of financial turbulence, and also a possible unwinding of macro imbalances, India plays a stabilising role with a modest current account deficit in most of the  BIS Review 45/2008  1  recent years, at around one per cent 1 of GDP, and a market determined exchange rate.