shortcoming of the current expansion has been the dearth of job creation over the past two years. last week ’ s report that employers added 308, 000 workers to their payrolls in march was encouraging and may signal that the recovery in the labor market is gaining traction. even so, the level of private employment remains more than 500, 000 - or 1 / 2 percent - below that at the trough of the recession in november 2001. the weak performance of the labor market over this period has been quite unusual by the standards of past economic recoveries, and, indeed, it is even weaker than during the infamous “ jobless recovery ” of the early 1990s. for example, employment rose about 2 percent in the twenty - eight months following the 1990 - 91 recession. and, in the other seven post - world war ii recoveries, employment growth averaged more than 8 percent over a period of comparable length. economic forecasters ’ consensus is that, as the expansion matures, employment will continue to improve sufficiently to make noticeable gains in the utilization of labor resources. i judge that to be a reasonable assessment. nonetheless, one cannot definitively rule out the possibility that hiring will fall short of expectations over the next several months as it had up until the most recent report. in particular, the lackluster performance we have seen in the labor market, even as real gdp has been moving up strongly, raises the question of whether an unusually large portion of the job cuts implemented by firms in recent years represent permanent layoffs that will only gradually be offset by job creation elsewhere in the economy. a number of hypotheses have been put forth as potential causes of the generally disappointing performance of the labor market, and, indeed, it seems likely that several factors have contributed to the shortfall in hiring. but any meaningful explanation must account for the surprising strength in productivity growth in recent years. in particular, labor productivity in the nonfarm business sector rose 4 - 1 / 4 percent in 2002 and nearly 5 - 1 / 2 percent in 2003, the largest back - to - back increases since the early 1960s. let me review the major hypotheses advanced to explain labor market developments. one possibility is that the same factors that induced businesses to take an unusually cautious approach to capital spending also influenced their willingness to add new workers. if so, then some of the surprising weakness in employment growth and some of the strength in productivity may have reflected a tendency by employers to stretch their existing work forces beyond a level

and watch. in general, recent financial markets developments are indicative of evolving uncertainties for emes with significant challenges for the conduct of monetary policy and for ensuring financial stability in their economies. as central bankers, we will have to enhance our vigilance. iv. challenges for monetary policy recent financial developments have drawn attention to the trying challenges facing central banks in the conduct of monetary policy, in particular, the limitations imposed by financial markets. these developments highlight the dynamic and complex links between central banks and financial markets. while the dynamics of financial markets are being driven by a combination of a global search for yields, complacency about risks, financial innovations and unprecedented liquidity, the spread of more independent, rule - based central banks has facilitated risk taking through perception of a low probability of short term management or “ intervention risk ”. this is set against the background of a shift in the balance of economic power within the global system, in particular, in favour of emerging asia. while taking a view on the debate, it is important to recognise the changes in the landscape of financial markets – transformation in structure, process and products of financial markets, consolidation in banking, increased electronic data flow and dramatic rise in volumes and volatility. the key issue for central banks is to differentiate between providing short term liquidity and operating medium term monetary policy and communicate the difference credibly. the conduct of monetary policy is also complicated by a host of factors which seem to be simultaneously at work : risk of sustained contagion ; global capacity constraints ; rising food prices ; record high international crude oil prices ; tensions in inflation expectations ; evolution of sovereign pools of foreign exchange reserves ; extent of effectiveness of monetary policy ; surveillance and risk monitoring systems ; and downgrade risks. in this evolving scenario, central banks may find it necessary to blend the traditional setting of monetary policy with some rethinking and non - traditional policy options which could include coordinated interventions, assurances of liquidity, backed by timely and credible action ; emergency liquidity plans, business continuity plans and disaster management strategies. admittedly, heightened uncertainties continue, even after taking into account the recent central bank activities in key jurisdictions. it is not even clear whether all the related issues have come to the surface for us to make meaningful assessment. i expect that i can't conclude this address without saying a few words on the domestic situation in india. the best way of doing this is to quote the governor from his recent speech in mexico city. " available