With this approach, interest rates or rates of return in different markets (money, capital and government securities markets), along with data on currency, credit extended by banks and financial institutions, fiscal position, trade flows, capital flows, inflation rate, exchange rate, refinancing and transactions in foreign exchange available on high-frequency basis, are all examined along with output in framing monetary policy.
In absence of proper regulatory and supervisory oversight, the NBF sector’s overleveraging of the financial systems has exposed the global financial system to multiple risks. As defaults emerged the financial institutions lacked ability to service obligations. This episode has generated unprecedented liquidity crisis and bank losses whose undervaluation/closures/liquidation impacted the financial markets at large.