the full force of the law is brought against him, even while banks make every effort to put the project, and the workers who depend on it, back on track. this is why we have strengthened the fraud detection and monitoring mechanism, and look forward to bank support to make it effective. the government is taking direct action to clear bottlenecks and revive stalled stressed projects, and intends to support them with equity infusion through the national investment and infrastructure fund. private well - funded players are looking to buy assets, and in recent weeks we have seen some promoters sell assets to raise money to pay banks or infuse in projects. all this activity bodes well for the success of the clean up. bis central bankers ’ speeches improving bank management and governance we must also ensure that we are not faced with this situation again. the government, through the indradhanush initiative, has sent a clear signal that it wants to make sure that public sector banks, once healthy, stay healthy. strengthening board and management appointments, decentralizing more decisions to the professional board, finding ways to incentivize management, all these will help improve loan evaluation, monitoring and repayment. banks must review their procedures to ensure they can make good credit decisions. the new bankruptcy code, when enacted, will finally give creditors a way of collecting repayment through the judicial process in reasonable time. so my hope and belief is that the next time will be different for public sector banks – they will emerge from this clean up stronger and more capable. liquidity let me turn to a final issue, unrelated to the aqr, that is, system wide liquidity. the rbi has been infusing plenty of liquidity in the system to offset any seasonal build up in government balances. indeed, money market rates have dipped dramatically on some days because of the liquidity infusion. nevertheless, market participants have complained about shortage. we invited a number of market participants to the reserve bank to discuss their concerns. while we are still trying to understand which of their concerns have merit and can be addressed, we are acting today on one issue that we were cognizant of, the use of slr bonds to meet liquidity coverage ratio needs. while the circular was in the works, we have expedited its issue because of what we heard from the participants. as of today, we will allow banks to count 3 percentage points more of their slr holdings towards lcr requirements. a more detailed announcement

have been reached at the end of last year. coincident and forward - looking indicators increasingly point to improvements in economic conditions. a similar picture is reflected in financial market expectations, especially those embedded in bond yields. the economic fundamentals of the euro area are sound and there are no major imbalances that would require a lengthy process of adjustment. the expectation of a recovery in the euro area in 2002 is furthermore supported by favourable financing conditions and by real disposable income benefiting from past and expected future declines in inflation. there is also increasing confirmation that economic activity outside the euro area is picking up, which should lead to a gradual strengthening of the external demand for euro area products and services. while the strength of the recovery remains uncertain, there are good reasons to expect a return of economic growth to levels in line with potential towards the end of the year. turning to short - term price developments, annual consumer price inflation picked up substantially in january. part of this increase was expected, as it related to base effects stemming from falling energy prices in early 2001 and to higher indirect taxes in some euro area countries. furthermore, the increase reflected a considerable rise in unprocessed food prices due to adverse weather conditions in parts of europe. part of the latter effect seems to have been reversed in the meantime, as preliminary data for february indicate. some increases have also been observed in oil prices and in the rate of growth of services prices in january. while there might have been an impact on specific service categories in january, overall there is no evidence that the euro cash changeover has had a significant upward effect on the average price level in the euro area or that the declining trend in annual inflation rates has been affected recently. in the coming months, the effects of past increases in energy and food prices should gradually subside and annual inflation rates should fall to below 2 %. the recent behaviour of producer prices also points in this direction. beyond that horizon, we expect little upward pressure on prices from aggregate demand and, barring unforeseen developments, inflation rates to be in line with price stability. however, the current favourable outlook for inflation fundamentally rests on the assumption of a continuation of wage moderation. as i already noted last month, there is some cause for concern with regard to ongoing wage negotiations. a continuation of wage moderation in the euro area is crucial not only to foster employment growth but also to support monetary policy in its task to maintain price stability. with regard to fiscal policy in the