association of india as a self - regulatory organisation formed by authorised dealers plays a constructive role in market development by initiating debates on important issues, organising training programmes and providing technical expertise on various matters. we expect the fedai to enhance its catalytic role in market development in the years ahead. to further the participatory process in a more holistic manner by taking into account all segments of the financial markets, the ambit of the technical advisory committee ( tac ) on money and securities markets set up by rbi in 1999 has been expanded in 2004 to include forex markets and the committee has been renamed as tac on money, securities and forex markets. tasks ahead the reserve bank will continue to adopt an approach characterised by gradualism in respect of future liberalisation of forex markets. in terms of sequencing, forex markets have to be aligned to external sector reforms and development of financial markets as part of overall reform. there are several aspects of reform in external sector and forex markets is one of them. therefore, further liberalisation in forex markets have to be harmonised with progress in other areas. as you are aware, all major reforms in the market have been brought about after soliciting the opinions of market participants and thus the system of participatory process in market development is very much in place and will continue. in order to further the participatory process, i am happy to inform you that yesterday i had discussions with my colleague dr. rakesh mohan and governor dr. reddy. it has been decided that rbi will immediately set up a committee to undertake a comprehensive review of the liberalisation process set in motion in the last decade, study recent international experience and identify various options for future forex market development in india. the committee will interact with market participants and experts for this purpose. the committee will prepare a report within three months which will be placed before tac. the report will then be placed in the public domain for nviting suggestions. on the basis of the suggestions received, a road map will be drawn up for further liberalisation to reach global standards. no doubt we will be associating, as usual, the forex association to assist us in this endeavour. let me conclude by thanking the assembly for giving this opportunity. our officers are also participating in the deliberations and we will get a feedback from them. wish you all the best in your endeavours.

improved policy framework, robust external reserves and resilient banking systems. yet the crisis affected virtually all emes, denting the credibility of the decoupling hypothesis. eme central banks found that transparently communicating why and how they were affected by the crisis, notwithstanding the decoupling hypothesis, actually helped assuage concerns and revive market confidence. 58. in the post - crisis period, the major way in which eme central banks have used communication is in giving forward guidance on monetary policy. 59. in the reserve bank too, we have started the practice of giving forward guidance on monetary policy. because of its potential impact, we pay much more attention to the language and nuancing of the “ forward guidance ” paragraphs than other parts of the statement. our experience in this regard has been quite positive. nevertheless, we face some challenges. let me give you a flavor of that. 60. forward guidance is always conditional. the dilemma then is how precisely the conditionality is to be communicated, and how to ensure that the market does not ignore the conditionality and interpret the guidance as an irrevocable commitment. conversely, how does the central bank ensure that it does not become hostage to its guidance? 61. also, the more uncertain the situation, the greater the need for guidance. but also, the more uncertain the situation, the more difficult it is to give definitive guidance. for example, when the forward outlook is uncertain, we are not able to precisely define the conditions under which the guidance holds and the conditions under which we may have to deviate from it. when we are not forthcoming on specifying the conditions, the market starts speculating on them, thereby raising the “ noise ” to message ratio. 62. despite these challenges, in the reserve bank, our experience with greater openness has been quite positive. we found that effective communication can be a powerful tool provided the central bank has credibility. 63. as their financial sectors get deeper and more sophisticated, eme central banks can usefully leverage on communication to enhance their policy effectiveness. to do so however, they have to improve their policy credibility as well as capacity levels. conclusion 64. central banks and central bankers have been at the heart of the global financial crisis. they have been blamed for policies and actions that got the world into the crisis ; they have also been praised for leading from the front in getting the world out of the crisis. i believe this is fair critique – central banks have been a