wage increase was of the order of 17 per cent during 2008 – 09 to 2012 – 13 so far. even after adjusting for high rural consumer inflation, real wage increase over 6 per cent per annum was significant ( table 2 ). in the formal sector, company finance data suggest that the wage bis central bankers ’ speeches bill has risen at a faster rate since the middle of 2009 – 10. as wages increase, entitlement goes up, and consequently demand and preference for essential commodities increases. third, with the persistence of near double - digit inflation in 2010 and 2011, the medium - to long - term inflation expectations in the economy have risen, underscoring the role of higher food prices in expectations formation. if inflation is expected to be persistently high, workers bargain for higher nominal wages to protect their real income. this creates a pressure on firms ’ costs and they may in turn increase prices to maintain their profits. independently, the producers ’ own inflation expectations also affect inflation directly by influencing their pricing behaviour. if companies expect general inflation to be higher in the future, they may believe that they can increase their prices without suffering a drop in demand for their output. fourth, there has also been added stimulus from the crisis driven fiscal and monetary policy. fiscal consolidation process was reversed in 2008 – 09 which impacted the macroeconomic conditions ( chart 2 ). higher fiscal expansion also impedes efficacy of monetary policy transmission. the moderation in private demand resulting from anti - inflationary monetary policy stance is partly offset by the fiscal expansion. let me now turn to the role of monetary policy in a little more detail. role of monetary policy the current phase of high inflation followed the global financial crisis, which affected india ’ s economy, though not with the same intensity as advanced countries. india, though initially somewhat insulated from the global developments, was eventually impacted significantly by the global shocks through all the channels – trade, finance and expectations channels. the reserve bank, like most central banks, took a number of conventional and unconventional measures to augment domestic and foreign currency liquidity, and sharply reduced the policy rates. in a span of seven months between october 2008 and april 2009, there was an unprecedented policy activism. for example : ( i ) the repo rate was reduced by 425 basis points to 4. 75 per cent, ( ii ) the reverse repo rate was reduced by 275 basis points to 3. 25 per cent, ( iii ) cash reserve ratio ( crr ) of banks was reduced by a

slowdown of the aes is both a cause and an effect of the sovereign debt crises in the eurozone and the associated fiscal problems. the sovereign debt crisis in the eurozone has not only aggravated the macroeconomic conditions of the countries of the eurozone but also, in turn, has deeply affected the balance sheets of global banks having exposures to these countries. the political measures and announcements, co - ordinated initiatives of the governments, and prolonged easing policies backed by unconventional measures of the central banks to provide a solution to the problems arising out of this crisis have not been able to evoke sustainable confidence in the financial markets. the fiscal austerity measures taken in response are further weakening the prospects of growth and employment in the affected european countries and, in turn, fiscal adjustment and repair of the national balance sheet are becoming an onerous task. the us continues to face high levels of unemployment, the consumer and business confidence remains shaken and the financial sector is still recuperating from the earlier crisis. the european union and the us form the two largest economies in the world and are deeply inter - twined with each other even in such adversities. there is, thus, a felt need for concerted actions by the policy - makers across the aes to save the global economy from falling into a downward spiral, rejuvenate the employment led bis central bankers ’ speeches recovery and pave the way for structural reforms required for sustainable and balanced growth not only in these economies but also in other economies including india. growth prospects economic growth around the world weakened significantly in q2 2012 after being better than expected in q1 2012. aes and edes alike are experiencing moderation in growth. the numerous problems confronting the highly inter - connected global economy are reinforcing each other in retarding the pace and prospects of growth. growth in the us has fallen during q2 2012 while uk has been experiencing negative growth rates for three quarters now. gdp growth in the euro area and japan has been negative during q2 2012. economic growth even in the brics nations, which serve as an engine of growth in the developing world, has slowed down considerably. one of the other pressure points in the world economy, particularly the aes, is the prevailing high unemployment. unemployment in the us above 8 per cent has been persistently high. uk is also experiencing high unemployment of about 8 per cent and so is the eurozone at around 11 per cent. unemployment in the peripheral countries