to curbing volatility in the exchange rate is total and unequivocal. i admit that we could have communicated the rationale of our measures more effectively. 36. but our actions were consistent. our capital account measures were aimed at encouraging inflows and discouraging outflows. also, we tightened liquidity at the short end to raise the cost of short - term money so as to curb volatility. at the same time, we wanted to inhibit the transmission of the interest rate signal from the short end to the long end as that bis central bankers ’ speeches would hurt flow of credit to the productive sector of the economy. so, we instituted an indian version of “ operation twist ”. 37. i must reiterate here that it is not the policy of the reserve bank to resort to capital controls or reverse the direction of capital account liberalization. notably, the measures that we took did not restrict inflows or outflows by non - residents. ii. challenges for the reserve bank on the way forward 38. now let me turn to the second part of my lecture. several times over the last five years. i have often been asked about the challenges for the reserve bank on the way forward. as i finish my term as governor of this great institution, this is a question that has been playing repeatedly in my mind. i am deeply conscious that this is not a seminar, so i will highlight, but only briefly, four challenges that the reserve bank will need to address in order to remain a premiere policy institution. managing policy in a globalizing world 39. the first challenge on my list is for the reserve bank to learn to manage both economic and regulatory policies in a globalizing world. the global financial crisis, the eurozone sovereign debt crisis as well as the currency market volatility over the last few months have emphatically demonstrated how external developments influence our domestic macroeconomic situation in complex, uncertain and even capricious ways. in making our policies, we have to factor in external developments, particularly the spillover impact of the policies of advanced economies on our macroeconomy. this will become even more important as india ’ s integration with the global economy increases. surely, globalization is a double edged sword. it comes with costs and benefits. the reserve bank needs to sharpen the analytical and intellectual rigour to make policies that exploit the advantages of globalization and mitigate its risks. 40. over the last five years, as

quarters of positive economic growth. the services sector remained the biggest driver of output while the resurgence of manufacturing also helped to strengthen our base for growth. growth also continued to be buoyed by strong private spending, aided by the increase in domestic employment and the steady inflow of remittances from overseas filipinos ( ofs ). the “ catch up ” in fiscal spending in 2015 also helped to raise domestic output. we experienced this strong economic growth together with low and stable prices. for the full year 2015, the average inflation rate stood at only 1. 4 percent, the lowest registered since the bsp adopted the inflation targeting framework in 2002. in the bsp, we characterize this “ sweet spot ” as – the positive convergence of strong growth and low inflation. for certain, the country ’ s healthy banking system founded on years of judicious reforms, including financial inclusion initiatives, aided the country ’ s economic expansion. our banks ’ the tagline of the manila times – “ trusted since 1898 ”. bis central bankers ’ speeches balance sheets have remained strong. in particular, our banks maintain high capital, with capital adequacy ratio above national regulatory and international standards and the quality of their assets continues to improve, with declining npl and npa ratios. the country ’ s external liquidity position has also continued to be robust and helped shield the economy and the domestic financial markets from the worst effects of the global shocks. our current account has been in surplus since 2003 supported by steady remittances and, in more recent years, strong receipts from the business process outsourcing sector. for the full year 2015, the overall balance of payments ( bop ) position yielded a surplus of us $ 2. 6 billion, a reversal from the us $ 2. 9 billion deficit in 2014. last friday, we released the balance of payments position for january 2016. it was a deficit of $ 0. 81 billion, which was due to the payment of national government ( ng ) debt service and the bsp ’ s foreign exchange ( fx ) operations that were only partially offset by fx inflows from deposits of the ng and bsp income from abroad. we see this deficit as temporary and we expect a turnaround in the bop position later this year, similar to what we experienced in 2015. our gross international reserves continue to grow. at end 2015, our gross international reserves ( gir ) stood at us $ 80. 7 billion, over us $ 1. 0