least ) asset. with this background in place, i would now move on to the central theme of the talk today “ changing contours of global crisis – impact on indian economy ”. i intend to cover the impact of both the crises i. e. global crisis 2007 and the current sovereign debt crisis, on global and indian economies with specific focus on real sector, financial markets and the banking system. ii. global crisis a. impact on global economy following the collapse of lehman brothers in september 2008, the global inter - bank financial markets froze in view of large losses suffered by the major financial institutions and the extreme uncertainty over the health of the counterparty balance sheets. this had a knock on effect on various segments of financial markets, including inter - bank markets. fire sales by investors contributed to further downward pressures on asset prices, leading to a vicious cycle of distress sales and declining asset prices. heightened risk aversion and search for safe havens led to deleveraging by investors and consequent sharp and substantial retrenchment in capital flows to emerging and developing economies. all this turmoil in various segments of the financial markets led to a sharp decline in economic activity in the major advanced economies. unemployment rates soared and labour markets became weak. given the high and growing degree of trade and financial integration between the advanced economies and the emerging and developing economies ( edes ), activity in the edes also decelerated sharply. real gdp growth in advanced economies turned negative in 2009 ( – 3. 7 per cent ) from the strong pace of 2. 9 per cent during 2004 – 07. growth recovered modestly in 2010, but again turned anaemic in 2011 ( 1. 6 per cent ). growth in advanced economies averaged a mere bis central bankers ’ speeches 0. 3 per cent during 2008 – 11 and output still remains well below potential. the imf expects growth in advanced economies to decelerate further to 1. 2 per cent in 2012. unemployment rate in the us more than doubled from 4. 4 per cent in december 2006 to a peak of 10. 0 per cent in october 2009 ; it has since then eased, at a very gradual pace, to 8. 5 per cent. capital flows ( net ) to edes more than halved from us $ 715 billion in 2007 to us $ 246 billion in 2008 as portfolio and banking flows turned negative. reflecting the growth shock in the advanced economies as well as the retrenchment in capital flows, real gdp

of the year. for over a year, this monetary policy divergence has been a major factor behind the depreciation of the euro against the us dollar. as chart 2 shows, since mid - 2014, the european currency has declined some 18 % in value and has also weakened on a trade - weighted basis, by around 9 %. the trade - weighted us dollar, by contrast, has gained approximately 15 % in this period. another important issue on financial markets has been the increased uncertainty due to the unresolved debt problem in greece. despite the fact that risk attitudes, as such, are positive, demand for safe investments and thus for the swiss franc has remained particularly strong. consequently, recent movements in the swiss franc have been influenced not only by the divergence between the dollar and euro regions, but also by persistent safe haven flows. the discontinuation of the minimum exchange rate led to a very substantial but short - lived appreciation in the swiss franc. the extent of this appreciation is shown in chart 3. the extreme movements in the exchange rate were accompanied by a sharp increase in volatility on the swiss franc foreign exchange market. since then, swiss franc volatility has declined, although it remains high in a long - term comparison with the period prior to the financial crisis. bis central bankers ’ speeches at the same time, bid - ask spreads, i. e. differences between the best purchasing and selling offers, widened substantially following the end of the minimum exchange rate. these, too, have declined in the past few months, although the bid - ask spreads remain relatively large. in trade - weighted terms, the swiss franc is no longer at the extreme levels that prevailed immediately after the discontinuation of the minimum exchange rate. however, it is still some 12 % above the level at the beginning of the year. thus, the swiss franc is still substantially overvalued. implementation and impact of negative interest exactly six months ago, on 18 december 2014, the swiss national bank ( snb ) decided to impose negative interest on sight deposit account balances at the snb for the first time, setting the rate at – 0. 25 %. when it discontinued the minimum exchange rate, it lowered the rate once again by 0. 5 percentage points, to – 0. 75 %. by imposing negative interest on sight deposits, the snb intends to move the three - month libor into negative territory and significantly reduce interest rates