as to place the global recovery on a sustainable path. in spite of large cross currency movements, misalignments continue to persist in the face of the continued global imbalances. in this context, further easing of monetary policy and stronger structural reforms in the euro area have assumed critical importance. despite the limits set by the growth and stability pact on the permissible extent of fiscal expansion, cyclical expansion may be fully allowed, at least, to neutralise the impact of shortfall in revenue realisation in the face of an economic slowdown. if the sources of global growth are not diversified across regions and if countries continue to rely on the us demand to increase their exports and thereby grow faster, the case for us depreciation would become stronger. rebalancing of growth dependence, therefore, would be critical to contain volatility in key exchange rates. several emerging market economies have been contending with the challenge arising from current account surpluses and pressures on the exchange rate to appreciate. large reserve accumulation by some asian emerging market economies, in a way, reflects their lack of confidence in the international financial architecture. the improved reserve position of emerging market economies will surely provide “ self insurance ”, giving the necessary flexibility for exchange rate management. as the duration of the global slowdown becomes more prolonged, fiscal and public debt problem of many countries could intensify further. fiscal adjustment, though necessary, would have to be weighed carefully and is best calibrated with the pace of global recovery. against the backdrop of several adverse developments including severe drought, uncertain global environment and considerable hardening of oil prices, the indian economy performed reasonably well during 2002 - 03. the growth rate of the indian economy at 4. 3 per cent, though lower than expected, was one of the highest in the world. this indicates the growing resilience acquired by the indian economy over the years. with a good monsoon so far this year, a strong recovery in agricultural output is expected. the output for the industrial sector is expected to be reinforced by the renewal of agricultural activity, the abiding strength of export growth and the improved environment for new investments as indicated by a surge in the production of capital goods and non - oil imports. overall, the economy is expected to perform much better in the current year. the growth process would be facilitated by benign inflationary conditions, adequate liquidity coupled with soft interest rates and strong external sector. as a result of various structural reforms, the indian financial system is increasingly

' s strong actions have helped bring the economy much closer to our 1 / 4 bis - central bankers'speeches goals. imbalances between supply and demand in the economy have mostly dissipated, even as the economy and employment have continued to grow. and inflation, as measured by the personal consumption expenditures ( pce ) price index, has declined from over 7 percent in june of 2022 to just 2 - 1 / 4 percent in the latest reading. there's still some distance to go to reach our goal of 2 percent, but we're definitely moving in the right direction. the data paint a picture of an economy that has returned to balance, or in a word that the english majors in the room may appreciate, " equipoise. " in light of the progress we have seen in reducing inflation and restoring balance to the economy, the fomc decided at its most recent meeting to lower the interest rate that it sets. simply put, this action will help maintain the strength of the economy and labor market while inflation moves back to 2 percent on a sustainable basis. moving to price stability i'll go further into our policy decision and what it means for the economic outlook in a minute. but first, i'll give more details about each side of our dual mandate, starting with inflation. i'll use an onion analogy that i have found useful over the past two years to demonstrate how inflation's three distinct layers are normalizing at different rates. 2 the onion's outer layer represents globally traded commodities. as the economy started to rebound from pandemic shutdowns and demand began to soar, inflation surged, then rose further when russia invaded ukraine. since then, supply and demand have come into balance, and these prices have generally been flat or falling. the middle onion layer is made up of core goods, excluding commodities. demand for goods rose sharply as the economy emerged from the pandemic downturn - just as global pandemic - related supply - chain disruptions significantly hampered supply. but, as seen in the new york fed's global supply chain pressure index, those supply pressures have eased, and core goods inflation has returned to pre - pandemic norms. 3 the inner onion layer comprises core services. although this category is taking the longest to normalize, the disinflationary process is well underway here too. for example, measures of underlying inflation that tend to be heavily influenced by core services inflation today average around 2 -