인도·남아시아

This paper examines the effect of interest rate differential on net capital flows to India by taking net foreign institutional investments as proxy for capital flow. Monthly data from April, 2005 to December, 2012 were procured and analyzed using time series econometric modeling. The co-integration results show that interest rate differential does not have any significant long-run impact on net foreign institutional investments flows to India. Further, only two variables namely, foreign exchange rate and Bombay stock exchange return have significant impact on Net foreign institutional investments and between the two, Bombay stock exchange index/return is the major pull factor for Net foreign institutional investments flows into Indian financial market. Results imply that monetary policy actions should continue to be guided by objectives related to inflation and growth and the management of capital flows resulting from monetary policy actions should be left to other instruments.