RBI seeks decisive policy actions on capital flows

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Mumbai, Jan 29 (UNI) The Reserve Bank of India today sought an appropriate and decisive policy action to manage capital flows consistent with macro fundamentals, In its third quarter review of the monetary policy, the RBI said that in the context of more open capital account and the size of inflows currently, public policy preference for a hierarchy of capital flows with a priority for morestable components could necessitate a more holistic approach.

Later, talking to reporters, RBI Governor Y V Reddy clarified that such stable inflows could be a better way for managing capital inflows and cited the investments in insurance and pension funds as the best examples for stable investments.

The RBI also called for sectoral regulations with broader mesures to enhance the quality of flows and make the source of flows transparent. ''In this context, it is critical for a public policy to effectively, demosntrably and convincingly indicate commitment to managing capital flows consistant with macro fundamentals through appropriate and decisive policy actions'', the Central bank said.

It said while the focus has generally been on managing the excess capital inflows and volatility in this regard to the excewss, it was essential not to exclude the possibility of some change in course, due to any abruptchanges in sentiments of global liquidity conditions, despite strong underlying fundamentals of the Indian Economy.

The Central Bank pointed out that events in the second and third week of this month indicated a potential for reversal in capital flows, though it wa not yet clear how transient such events would turn to be. ''Strategic management of the capital account would warrant preparedness for all situations, and the challenges for managing the capital account in such an unexpected turn of events may be quite different.

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