Governors agree to monitor capital flows

Central Bank Governors stressed the need for strong leadership and decisive action, particularly in periods of crisis at the 46th SEACEN Governors’ Conference held last week.

A Central Bank press release said the Governors recognised that price stability could no longer be the single focus of central banks and emphasised a greater role for central banks in fostering financial stability due to the increasing linkages between the macroeconomic environment and the financial sector.

They emphasised the need for sound macroeconomic policies, complemented by macro-prudential measures to ensure a strong economic and financial system, it further said.

The Governors discussed the vulnerability from large and volatile capital flows and its implications for monetary and exchange rate policies.

The Governors emphasised that effectiveness of the policy choice depends on the nature of capital flows.

They discussed the need for a more robust surveillance system and greater cross border cooperation to monitor capital flows.

They also emphasised the need for a more developed financial system to mediate these capital flows and a more liberalized environment to encourage outward investment.

The Governors also discussed the need to pay more attention to the volatility in the exchange rate caused by capital flows, as it had an adverse impact on small open economies.