the global economic outlook deteriorated sharply, and the indian economy got impacted by the contagion through all the channels – the financial channel, the real channel and the confidence channel. the reserve bank ’ s crisis response included, like in the case of other central banks, both conventional and unconventional measures. in response to the easing of policy interest rates and abundant liquidity made available, market rates eased significantly. yields on 10 - year central government securities fell from 8. 6 per cent at end - september 2008 to 5. 3 per cent by end - december 2008. this trend has since reversed with yields hardening since the beginning of the current calendar year on the back of large and abrupt increase in the government borrowing programme. in contrast, interest rates on bank deposits and loans have exhibited stickiness. while the reserve bank cut the effective policy rate by 575 basis points, banks ’ benchmark prime lending rates ( bplrs ) have seen a reduction of only 100 - 275 basis points. this stickiness has impeded monetary transmission and blunted the intended impact of policy actions. what is the explanation for the stickiness in the interest rate structure of banks? there are several factors that cause this stickiness – the higher rates of interest offered by the small savings instruments which discourage banks from reducing deposit rates, the high cost of deposits raised by banks during earlier tighter monetary policy regime which raised their weighted average costs, and the large government borrowing programme which pushed up yields on government securities. these factors, which impeded monetary transmission, were in play even before the crisis. a definite task going forward will be to address the impediments to monetary transmission. fourth concern : fiscal stimulus – withdrawal and quality of adjustment like in other economies, fiscal stimulus measures and weakening of economic activity have led to substantial increase in our fiscal deficits. the central government ’ s fiscal deficit is budgeted to jump from 2. 7 per cent of gdp in 2007 - 08 to 6. 8 per cent in 2009 - 10 ; the combined fiscal deficit of the centre and the states is expected to increase from 4. 2 per cent of gdp to 10. 2 per cent over the same period. these deficits are large and need to be rolled back. what is the scope for adjustment? what lesson does our past experience offer? as a result of the discipline imposed by the fiscal responsibility and budget management ( frbm ) act, the centre ’ s fiscal deficit came down from 6. 2 per cent of gdp in 2001 - 02

mario draghi : hearing at the committee on economic and monetary affairs of the european parliament introductory statement by mr mario draghi, president of the european central bank, at a hearing before the committee on economic and monetary affairs of the european parliament, brussels, 19 december 2011. * * * dear madam chair, dear honourable members, e per me un estremo piacere partecipare per la prima volta come presidente della banca centrale europea a questa riunione. il dialogo monetario trimestrale con l ’ econ rappresenta un ’ opportunita fondamentale e la pietra angolare per un rapporto costruttivo tra le nostre due istituzioni. cet echange a lieu quelques semaines seulement apres que d ’ importantes decisions ont ete prises a la fois par le conseil des gouverneurs de la bce et par les chefs d ’ etats et de gouvernements. dans ce contexte, notre discussion promet d ’ etre particulierement riche et fructueuse. zur einfuhrung werde ich zunachst auf die aktuellen wirtschaftlichen entwicklungen im eurogebiet eingehen. anschließend werde ich mich den von ihnen gewunschten themen zuwenden, namlich dem instrumentarium zur krisenbewaltigung einerseits, sowie den rating - agenturen andererseits. i. economic and monetary developments since the last regular hearing in october with former president trichet, the ecb has taken a number of steps to ensure that it will continue to deliver price stability in the medium term in an environment that remains challenging. these steps relate both to changes in our interest rates and to non - standard measures. as you know, regarding interest rates, the governing council early december decided to lower the key ecb interest rates by 25 basis points, following a 25 basis point decrease on 3 november 2011. as regards the short - term growth outlook for the euro area, the intensified financial market tensions are continuing to dampen economic activity in the euro area and the outlook remains subject to high uncertainty. euro area economic activity should recover, albeit very gradually, in the course of 2012, as also projected by