unwarranted price mark - ups. productivity growth in a number of sectors, partly due to it investments combined with restructuring, has also enabled absorption of higher costs. fall in intensity of oil usage, and, in case of many emerging market economies, lessthan - complete pass - through of oil prices have also helped to contain headline inflation. finally, changes in the conduct of monetary policy frameworks such as inflation targeting regimes with greater focus on price stability and increased central bank credibility have contributed to keeping inflationary expectations largely stable and anchored at low levels. nonetheless, the cumulative impact of the past increases in oil and other commodity prices has led to headline inflation in many economies marginally exceeding their respective targets. central banks have, therefore, been tightening their monetary policies to stabilise inflation expectations, especially since demand conditions have been strong and output gaps are closing in most of the economies ( chart 22 ). while the federal reserve in the us has paused since end - june 2006 after 17 successive hikes of 25 basis points each between june 2004 and june 2006, it has indicated that further tightening would depend upon the incoming information. the european central bank is anticipated to continue to tighten further, despite a pause in its latest meeting. thus, global interest rates, which had eased significantly during 2002 - 2003, are likely to remain relatively higher in the short - term. although in recent weeks, international crude oil prices have eased substantially to below us $ 60 a barrel, they still remain quite high and furthermore, the outlook remains uncertain. moreover, although headline inflation in major advanced economies has indeed exhibited significant moderation during september 2006, core inflation continues to remain firm. in brief, globally, both output growth and consumer price inflation are relatively more stable despite a series of supply shocks. on the other hand, commodity prices, exchange rates and other asset prices have exhibited heightened volatility. when inflation and interest rates are low, as is the case now, small changes in inflation expectations or interest rate expectations can lead to repricing of risks which can be quite large. in turn, this repricing of risks can lead to elevated volatility in asset prices, as was witnessed during may - june 2006. iii. current economic situation : india against this backdrop of external outlook, it would be useful to have an assessment of the indian economy for 2006 - 07, based on developments during 2006 - 07 so far. a review of the developments suggests that the indian economy is on its way of achieving growth close

for banks to continue to strengthen their resilience where this is needed. the soundness of banks ’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels. to sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. a cross - check with the signals from the monetary analysis confirms this picture. although good progress is being made, the need for structural and fiscal adjustment remains significant in many european countries. on the structural side, further swift and decisive bis central bankers ’ speeches product and labour market reforms are required across the euro area to improve competitiveness, increase adjustment capacities and achieve higher sustainable growth rates. these structural reforms will also complement and support fiscal consolidation and debt sustainability. on the fiscal front, it is crucial that governments undertake all measures necessary to achieve their targets for the current and coming years. in this respect, the expected rapid implementation of the fiscal compact should be a main element to help strengthen confidence in the soundness of public finances. finally, pushing ahead with european institution - building with great determination is essential. we are now at your disposal for questions. bis central bankers ’ speeches