This paper highlights the complementarity of multiple policy instruments in an open economy subject to volatile capital flows. The central bank operates under a broad mandate and implements optimal policy with discretion. With three policy instruments - the policy rate, an interest equalization measure, and foreign exchange market intervention – the central bank restores the output-inflation trade-off in the canonical closed-economy New Keynesian model. It also achieves perfect stabilization of undesirable hot money flows and insulates the domestic economy from foreign monetary policy and other demand-side shocks.