Recently there has been considerable expansion in global liquidity but this should not dilute the vigil of policy makers in regard to volatility in capital flows. Very often, it is difficult to assess, ex ante, whether capital flows are temporary or permanent. It is prudent for policy makers to assume that they are reversible till they are proven to be enduring.
Impact on real economy of significant reverse movements over a relatively short period could be destabilizing with attendant serious welfare implications. We in Asia are acutely aware of these aspects. Recent sharp upward movements in oil prices in an era of heightened uncertainties is yet another reason for policy makers in Asia to be vigilant.