Policies in emerging markets The risks associated with increased capital inflows require the authorities to implement strategies that allow the prevention and management of possible problems in the economy and the financial system. The tools for policy makers fall into two groups.
The first consists of measures to discourage capital inflows, on the assumption that portfolio flows are the most volatile, the main incentive for them being the search for yield. One way to weaken the draw for external financing is to lower domestic policy interest rates, even to levels that might not be optimal from the point of view of price stability.