Question

1) Have policy responses relied on easing or tightening capital controls? On inflows or outflows? 2) Why have some central banks intervened on FX markets?

Answer 1

Policy responses from the central bank has centrally relied upon the monetary flow in the economy because the monetary flow in the economy will be deciding upon the demand in the economy and it will also depend upon the inflation in the economy so it is the basis for the formulation of the monetary policies as these policy responses are relied upon easing and tightening of the capital control which will be substantially resulting into controlling of inflows and outflows of cash in the economy so it will be leading to control of the overall economy through adaptation to the monetary policy which has been set in accordance with the existing economic conditions to maintain the economic stability.

So, Central Bank has also intervened in the forex market in order to have a sterilised intervention in order to control their fluctuations of the domestic currency and the foreign currency so that they can have a better system in place which will be trying to control the external factor to some extent and they are also influencing the overall internal economy by rotation of the monetary policy.

Hence Central Government have been trying to control it through the monetary policy and the intervention into the foreign exchange market in order to have a stability into the economy.