Our gold holdings amounted to around Rs5.7 billion as at end-December 2011, or around 7 per cent of gross external reserves. Our reserves are at a comfortable level when measured against the two traditional metrics of import cover and short-term debt cover. We actively pursued our diversification strategy into higher-yielding instruments and comparatively stable currencies.
Indeed, had the Fed not been data dependent in this second sense and remained closed to the possibility that the economy had changed and historical estimates of r* and u* needed to be revised, that stubbornness would have represented a material policy mistake. In addition to u* and r*, an important input into any monetary policy assessment is the state of inflation expectations.