concerns. when inflation surged earlier this year, the rbi had moved quickly to tighten policy. then again, reflecting the unfolding global situation and expectation of decline in inflation, rbi has adjusted its monetary stance over the last couple of months. the endeavour of our monetary stance has been to manage liquidity – both domestic and forex liquidity – and to ensure that credit continues to flow for productive activities. i do not intend to go into a detailed cataloguing of all the measures we have taken, but i do want to mention that we have instituted both aggregate measures as well as sector specific measures. although, we remain vulnerable to global financial and economic developments, the measures taken so far have eased the liquidity and credit flow situations considerably. i must also add that in managing the impact of the global crisis, we have been mindful that no policy initiative is totally costless. managing this delicate balance between costs and benefits has been one of our challenges. going forward, developments in the real economy, financial markets and global commodity prices point to a period of moderation in growth with declining inflation. the fundamentals of our economy continue to be strong. once calm and confidence are restored in the global markets, economic activity in india will recover sharply. but a period of painful adjustment is inevitable. the reserve bank's policy endeavour will be to ensure an orderly adjustment, and to minimise the pain of its impact. in particular, we will try to maintain a comfortable liquidity position, see that the weighted average overnight money market rate is maintained within the repo - reverse repo corridor and ensure conditions conducive for flow of credit to productive sectors, particularly the stressed export and small and medium industry sectors. we hope that all economic agents will plan their business activities on the basis of this assurance. lessons from the crisis the crisis is by no means over. drawing lessons may therefore appear a bit premature. there may yet be surprises. even so, it will be instructive to put our minds together to understand how we got here and how we may avoid the mistakes and excesses in the future. it will be presumptuous on my part to anticipate the whole gamut of issues that you will bring to the discussion. given your collective experience and expertise, that will indeed be a rich contribution. but i want to take this opportunity to raise some of the more important debates thrown up by this crisis. i will refer to five debates. 1st debate : how do we manage global

account liberalisation on the back burner. further, the recent crisis of 2008 has also led to a rethinking on the issue of capital flows. it seems that international opinion is moving towards acceptance of capital controls both at the source and the destination, if the situation so warrants. 5. in india, as some of you may be aware, we have “ light ” capital controls. the policy towards capital flows is one of carefully calibrated approach. we began liberalising the capital account in 1991. we view the capital account liberalisation as a “ process ” and not an “ event ”. the path of capital account liberalisation is well calibrated but is subject to change, depending upon the evolving domestic and international economic conditions. why is this gradualist approach? we believe that the benefit of capital flows hinges on pace of liberalisation of the overall economy and market efficiency and in the absence of those, unfettered capital flows could endanger financial stability. therefore, we are guided by the principle that process of capital account liberalisation should progress in tandem with reforms in the financial sector and real sector. 6. nevertheless, capital flows to india remained volatile especially in the last few years. portfolio flows dominated by foreign institutional investors ( fiis ) showed large swings having implications for liquidity, besides complicating monetary and exchange rate bis central bankers ’ speeches management. more frequent changes in the direction and variation in capital flows have been a matter of concern in the context of a widening current account deficit. our policy response to handle capital flows quite often had to switch mode quickly from addressing excessive inflows to sudden outflows. 7. i hope this conference would provide further insight into how to handle capital flows. i am sure that we will benefit immensely from the deliberations. i see that there are a number of good papers, country presentations and panel discussions which will throw more light on the subject. the collaboration with the adb has brought more ede and asian perspective which will provide useful policy inputs to sharpen our skills to better manage capital flows. 8. i once again extend my hearty welcome to you all and wish you a nice stay in mumbai. thank you. bis central bankers ’ speeches