the international division of labor and progress in financial innovation have fostered efficient allocation of resources, thereby contributing to world growth. world gdp growth is likely to register around 5 percent this year, close to what we have been observing since 2003. another feature of current world economic growth is a reduction in the amplitude of fluctuations in the rate of growth and inflation. this is the so - called " great moderation, " often cited by academics and economists. the stability in the world economy and prices became noticeable after the second oil crisis. the inflation rate, in particular, has decreased substantially since the year 2000 in terms of its average in both industrialized countries and emerging economies, and has also been less volatile. the current situation of the world economy, where low inflation coexists with high economic growth, seems favorable for central banks, which aim to achieve stability in prices and in economic activity. however, it is a regrettable truth that the job of central banks never gets easier, only more challenging. let me now discuss some phenomena that have brought new challenges into being. ii. changes in the relationship between output and prices the first phenomenon is that the conventional wisdom regarding the relationship between output and prices is becoming increasingly inapplicable. in technical economic terms, this phenomenon could be described as a " flattening of the phillips curve, " and there is uncertainty about how flat the curve has actually become, how long this situation will continue, and whether the relationship will eventually return to its previous state. this phenomenon has been observed in many industrialized countries, and i would like to outline the situation in japan as an example. after hitting bottom in 2002, the japanese economy entered the phase of recovery, supported by strong external demand due to the expansion of overseas economies. in recent years, the annual growth rate has been around 2 percent, slightly higher than the economy's potential growth rate, and resource utilization, namely in labor and production capacity, has been increasing. however, upward pressure on prices has yet to rise markedly. the year - onyear rate of change in the consumer price index ( cpi, excluding fresh food ) was negative from fiscal 1998 through fiscal 2004, and has since been around 0 percent. i think this situation, where prices do not rise despite the steady growth of the economy, is in part due to changes in the environment surrounding prices and wages amid the progress of globalization. products made in japan have been facing fierce competition from products imported from emerging economies. in the meantime, japanese

to the minimum. while we remain technology neutral, we require banks to seamlessly integrate whatever technology they choose, with their cbs architecture. as a philosophy, we have always encouraged banks to pursue fi as a commercial activity and to not view it as social service or charity. the self - sustainability and commercial viability of the fi initiatives are important if banks have to scale up their operations to cover more unbanked areas. we have advised banks to adopt innovative business models and delivery channels to expand their fi efforts. there is a need for banks to develop new products and design new delivery models that are customized to the unique needs of the financially excluded population, both in the rural and urban areas. the reserve bank has sought to play a supportive role in fi by creating a conducive regulatory environment and providing institutional support to banks in their fi efforts. importantly, we have provided banks the freedom and the space to determine their bis central bankers ’ speeches own strategies for rolling out fi and have encouraged them to identify their own goals and targets through their respective financial inclusion plans. institutional mechanism 4. our strength lies in the fact that we have created a robust institutional mechanism to support the roll out of banking services across the country. this was essential considering the enormity of the task in terms of the number of excluded people and the geographical size of the country. our institutional architecture includes : the financial stability and development council ( fsdc ) chaired by the union finance minister and involving heads of all financial sector regulators, which has financial inclusion and financial literacy as one of its important mandates. a technical group on financial inclusion and financial literacy under the fsdc involving not just the financial sector regulators, but also the education boards and curriculum developers. a high level financial inclusion advisory committee ( fiac ) set up by rbi to focus on providing strategic direction to fi initiatives across various stakeholders. a strong institutional mechanism at the level of banks through 35 state level bankers ’ committees, 644 lead district managers and more than 100 thousand bank branches. more than 700 financial literacy centres and rsetis imparting financial literacy to complement the financial inclusion measures. recent financial inclusion initiatives 5. learning from the experience gained from the outcomes of our fi initiatives over the years, the reserve bank has taken certain additional steps to provide greater impetus to the process of financial inclusion. we have encouraged banks to adopt a structured and planned approach to financial inclusion with commitment at the highest levels, through preparation of board approved financial inclusion plans ( fips )