Question

Why maintaining high interest rates does not gurantee the absence of capital flights?

Answer 1

Capital flight is the uncertain and rapid movement of financial assets and capital from a country which is motivated by negative fiscal policy , political and economic uncertainty. It can be legal when foreign investors send back their capital to hone country or can be illegal when economies imposing capital control to restrict transfer of capital out of the economy .
     It can be occurs through country specific reason or macroeconomic developments that triggered large scale shift in investment.
     one of the reason for this is low interest rate environment . Low interest rates can trigger 'Carry Forward' which means borrow from this low interest rate environment and invest in potentially high return assets like equities and junk bonds . But maintaining higher interest rate can't guarantee the absence of capital flight because their are several more reason for this .

1 . Currency devaluation : foreign investors flee from such nations before their assets lose too much value

2. Political and economic turmoil

3. Threats of hyperinflation which could decrease the value of asset

4. Threat of imposed nationalisation

5. Balance of payment crisis : larger BoP cause depreciation in exchange rates which could lead capital flight

6. Lack of confidence in economy

7. Fear of rising income or capital gain tax