subir gokarn : financial stability welcome remarks by dr subir gokarn, deputy governor of the reserve bank of india, at the saarcfinance governors ’ symposium, kumarakom, kerala, 10 june 2011. * * * governor dr. subbarao, distinguished governors, dr. reddy, mr. caruana, mr. ninan, mrs. thorat, deputy governors, our guests from saarc central banks and friends. on behalf of the reserve bank of india, i extend a warm welcome to you all to the saarcfinance governor ’ s symposium 2011 on the theme of financial stability. just to refresh your memories, the last governors symposium organized by us under dr. reddy was in 2005 at mumbai which dealt with the theme of “ communications policy of central banks ”. financial stability is indeed a most appropriate theme for this meeting. the recent financial crisis also termed as “ the great recession ” clearly brought financial stability to the centrestage of public policymaking. the global financial crisis that swept the economic and financial systems across the world during the last three years has shaken our beliefs in some near truths. one, it has questioned the premise that price stability and financial stability are complementary. rather financial stability can be jeopardized even in an environment of price stability and macroeconomic stability. two, it is now impossible to imagine of sustained growth without financial stability. any disruption in the financial system anywhere in the world has the potential of affecting the real economy not only in that country but also elsewhere. we have seen that domestic and global financial stability are not mutually exclusive domains. with increasing financial globalization, there was a growing realisation about this, but the extent of transmission of disruptions during the recent financial turmoil through different channels, namely finance, trade and confidence channel was unthinkable before the crisis. it also came as an unpleasant revelation that even those countries which had not contributed to the immediate causes of the crisis had to bear the brunt of an unwholesome international financial climate. hence, domestic financial stability cannot become a realistic goal in the absence of a conducive global environment. three, the two - speed recovery, accompanied by a widening of global economic imbalances is at the centre of a new configuration of risks. these are visible on a variety of fronts – sovereign debt risks, financial fragility, the search for yield, and related stresses in emerging - market economies and foreign exchange markets. hence

in a row, inflation has remained below the permanent 3 percent target. this is quite an achievement, as convergence to this objective assumes inflation to fluctuate see shcp ( 2016 ). “ documento relativo al cumplimiento de las disposiciones contenidas en el articulo 42, fraccion i, de la ley federal de presupuesto y responsabilidad hacendaria, ” april. bis central bankers ’ speeches sufficiently close to 3 percent, sometimes above and sometimes below. before 2015, inflation persistently ran around an average above 4 percent. lower inflation has resulted from both relatively contained core price increases and declining noncore inflation. a surge in core merchandise inflation reflects a modest effect from peso depreciation on tradable goods prices. at the same time, the core services component has remained subdued, benefiting from persistently falling telecom tariffs resulting from competition enhanced by reforms in that sector. it may also suggest the absence of significant overall aggregate demand pressures to date. falling noncore inflation reflects reduced agricultural price increases, as well as contractions in the index for energy and government - determined prices. short - and medium - term inflation expectations, as reflected in analysts ’ surveys, are gradually moving towards the 3 percent permanent target, while those extracted from market instruments seem to have converged to the target, a significant advance in light of a history of high inflation. 6 some threats to the consolidation of inflation convergence to the target prevail. upward risks are particularly substantial in view of the relatively short time inflation has remained anchored on the target. the biggest menace may come from further peso weakness, which could result in greater pass - through and misalignment of inflation expectations. another risk could emerge in aggregate demand pressure, as total absorption has increased. agricultural price rises may also pick up, reverting to the medium - term average, carrying second - round price effects. thus, monetary policy must avoid complacency, remaining on watch to consolidate inflation convergence. results, although recently positive, include no guarantee for the future. in addition, exchange rate considerations have to be viewed from the perspective of the bank of mexico ’ s price stability mandate. for time - consistency considerations, the relative monetary stance vis - a - vis the united states should continue to be a factor. however, challenges to price stability may surface whatever the u. s. federal reserve does. hence, monetary policy actions