is to conduct a monetary policy aimed at ensuring that inflation and inflation expectations develop in accordance with our target. this in turn means that the social partners can continue to sign agreements based on the assumption that the inflation target will be met a couple of years ahead. judging from the surveys we make of inflation expectations, monetary policy in this respect has a very high level of credibility. it is the task of myself and my colleagues on the executive board to ensure that this remains the case. 1. inflation differential rel. germany per cent ( 3 month moving average ) - 2 - 4 - 6 source : oecd 2. relative unit labour cost manufacturing industry, index 1970 = 100 ( 3 month moving average ) source : oecd 3. gdp annual percentage change - 1 - 2 - 3 source : the riksbank 4. labour market 3 month moving average 7, 0 unemployment, per cent of labour force ( left hand scale ) employment, thousands ( right hand scale ) 6, 0 5, 0 4, 0 sources : statistics sweden and the riksbank 5. current account and public finances percentage of gdp ( 3 year moving average ) public financial saving current account - 2 - 2 - 4 - 4 - 6 - 6 - 8 - 8 - 10 - 10 sources : oecd and the riksbank 6. hourly wages annual percentage change ( 3 year moving average ) real wages nominal wages - 2 - 2 - 4 - 4 sources : nier, national mediation office

. the indian economy was vulnerable due to the then prevailing high inflation of around 10 per cent and large current account deficit at 4. 7 per cent of gdp. the reserve bank resorted to a host of policy measures including monetary tightening, restriction on gold import, special dollar swap window for public sector oil companies, special concessional swap window for banks for attracting foreign currency non - resident ( bank ) deposits, increase in overseas 2 / 5 bis central bankers'speeches borrowing limit of banks, and raising fii investment limit in government debt. what do we learn? 12. though there is no unique solution to these policy issues confronting the global economy, we could clearly draw three broad inferences : 1. first, as we have discussed earlier, central banks ’ role is important, both during normal as well as crisis times. while mandates for central banks broadly remain the same during both normal and stress periods, the weightage attached to competing objectives and the choice of policy instruments become crucial in the crisis periods. 2. second, communication by central banks is very important which may be different in crisis times than in normal times. not only it helps convey decisions in a more transparent way, it also signals the present and future policy stance of central banks. in fact, unconventional monetary policy measures undertaken by central banks during the crisis period worked mainly through the confidence and signaling channels. the us federal reserve ’ s statement on december 16, 2008 provided a clear forward guidance for the markets. on the other hand, only a mere hint of monetary policy normalisation by the us fed ( popularly known as taper tantrum ) in may 2013 triggered portfolio outflows from some emerging market economies ( emes ) 4. this led to high volatility in equity, debt and currency markets. in fact, such market volatilities in emes could have been avoided through clear advance communication on calibrated withdrawal of monetary policy accommodation. in the indian context, the reserve bank communicates its monetary policy decisions in terms of changes in the ‘ policy repo rate ’ and ‘ stance ’ based on an assessment of the current and evolving macroeconomic situation. the stance of the monetary policy is communicated as neutral, accommodative or calibrated tightening in consonance with the mandate of achieving the medium - term inflation target of 4 per cent ± 2 per cent, while keeping in mind the objective of growth. the reserve bank ’ s approach to communicate the policy stance is to explain it with rationale,