##dicious balance between price stability and economic growth. the relative emphasis between price stability and economic growth is governed by the prevailing circumstances at a particular time and is spelt out from time to time in the policy announcements of the reserve bank. financial stability, subsumed in monetary stability, has gained in importance since the second half of the 1990s. the reserve bank discharges the functions of debt manager and banker to the government of india and the state governments. regulation and supervision of banks and non - banking financial companies are also assigned to reserve bank. in addition to management of current and capital account transactions of external sector, development and regulation of the money, government securities and forex markets are also the functions of the rbi. payment systems also fall within the purview of the rbi. measurement and targeting of inflation an appropriate inflation indicator should reflect price changes of the constituent items accurately and provide some understanding of the headline inflation. the consumer price index ( cpi ) is generally favoured as an indicator of inflation for monetary policy. given the widely differing consumption baskets as between the rich and the poor, between the rural and the urban areas and even across regions in india, a single cpi index could be less representative. hence, a measure of producer prices to which the wholesale price index ( wpi ) is akin, is currently treated as more representative and familiar across the country. however, the growing importance of services in the consumption basket makes the wpi less representative. there are occasions when divergence between wpi and cpi is larger than usual. in view of these considerations, we do monitor and disseminate all the cpi indicators, while using this as relevant information for policy formulation. in parallel, we are doing technical work on computing a harmonised consumer price index, and we are in consultation with the government in this regard. it is increasingly recognised that monetary policy should be associated with managing inflation expectations also. the guiding criterion for inclusion of a variable in the inflation indicators panel would be the information content on future inflation. we are now actively working on collecting information relating to real - sector indicators of future inflation, such as variability of output around trend / potential, capacity utilisation, inventory, corporate performance, industrial / investment expectations and other indicators of aggregate demand. in india, we have not favoured the adoption of an explicit inflation - targeting framework for several reasons. first, the monetary policy in india has the twin objectives of growth and price stability but the relative emphasis between the two keeps varying depending upon the circumstances.

of the exchange rate on domestic petrol price increases has been in excess of 50 cents per litre. the producer price index also shows that while the headline ppi inflation increased by 7, 8 per cent, the imported component increased by 2, 1 per cent. this favourable inflation prognosis has allowed us to reduce interest rates to their lowest levels in about 30 years. our real interest rates are also low by comparison with recent experience. throughout the 2000s, depending how one measures real interest rates, the average real policy rate was between 3 and 3, 5 per cent. in the recent past this has declined to around 1, 5 to 2 per cent. under the conditions outlined, monetary policy is expected to remain relatively accommodative for some time, but contingent on changes in the outlook for inflation and the factors that impact on inflation. where does the economy go from here? south africa ’ s biggest internal challenge is unemployment, currently in excess of 25 per cent on the narrow definition. there is no doubt that addressing this must be the national policy priority. south africa ’ s unemployment is of a structural nature, and not something that can be solved by interest rates or the exchange rate alone. as we have noted on numerous occasions, interest rates can have a cyclical effect on growth or employment, but on their own will not be able to solve an inherently structural problem. it is incorrect to look at the interest rate or the exchange rate as the silver bullet that will solve the country ’ s growth problems. the exchange rate is just one element in the story, and excessive focus on the exchange rate could result in the neglect of other factors that would constrain growth even with an appropriately valued exchange rate. to improve south africa ’ s competitiveness and growth prospects requires concerted policy coordination across government departments. there are some obvious microeconomic reforms or initiatives that should be prioritised, and i will refer to only a few. a continued focus on infrastructure is essential. because the world cup is behind us, there should not be a decline in spending on infrastructure. this is one of the best forms of expenditure that can be undertaken. it is investment in the future as opposed to current consumption. it is productive, it provides jobs, and it helps alleviate constraints to growth and to exports. while there is a clear need to address the blockages affecting the mining sector, it does not help to increase mineral extraction if the rail infrastructure is unable to get the ore to the ports, and if the