remains persistently higher than those of the trading partners, it affects external competitiveness through appreciation of the real exchange rate. sixth, as inflation rises beyond a threshold, it has an adverse impact on overall growth. the reserve bank ’ s current assessment suggests that the threshold level of inflation for india is in the range of 4 – 6 per cent1. if inflation persists beyond this level, it could lower economic growth over the medium - term. these costs, therefore, necessitate monetary policy response to control inflation. how did the inflation dynamics change? it is important to appreciate the background in which the inflation surge has occurred. the current phase of high inflation followed the global financial crisis, which affected the india ’ s economy, though not with the same intensity as advanced countries. managing inflation in an reserve bank of india annual report 2010 – 11. bis central bankers ’ speeches economy which is recovering from a downturn is much more complex because of associated uncertainties than managing inflation under normal conditions. prelude to current inflation surge in the initial phase of the crisis, it appeared that emerging market economies ( emes ) were better positioned to weather the storm created by the global financial meltdown on the back of their substantial foreign exchange reserve cushion, improved policy frameworks and generally robust banking sector and corporate balance sheets. however, any hope about emes escaping unscathed could not be sustained after the failure of lehman brothers in september 2008 which triggered global deleveraging and heightened risk aversion. eventually, emes were also adversely affected by the spillover effects : first through contraction in world trade and then from reversal in capital flows. india, though initially somewhat insulated from the global developments, was eventually impacted significantly by the global shocks through all the channels – trade, finance and expectations channels. in response, the reserve bank swiftly introduced a comprehensive range of measures to limit the impact of the adverse global developments on the domestic financial system and the economy. the reserve bank, like most central banks, took a number of conventional and unconventional measures to augment domestic and foreign currency liquidity, and sharply reduced the policy rates. in a span of seven months between october 2008 and april 2009, there was unprecedented policy activism. for example : ( i ) the repo rate was reduced by 425 basis points to 4. 75 per cent, ( ii ) the reverse repo rate was reduced by 275 basis points to 3. 25 per cent, ( iii ) the cash reserve ratio ( crr ) of banks

banks but also the financial sector and even the government - all of which have had a positive impact on the customers of these organizations and the general public at large. technology and payment systems initiatives let me dwell briefly now on the various technological and payment systems developmental initiatives undertaken in the indian banking and financial sector. though, we are moving from ‘ brick and mortar ’ banking concepts to ‘ virtual ’ banking concepts gradually in view of it penetration in every sphere of banking, banking with physical presence is going to stay in india due to the unique nature of the indian banking and varied indian demographic structure. starting from the rangarajan committee report in early 1990s which started the process of branch automation in banks, banks have witnessed a lot of changes on the technology front during the last 18 years. the banks in india started from a disparate it infrastructure in general and moved over to consolidation and virtualization of databases and servers gradually over the years in order to achieve efficiency, cost reduction, improvement in customer services and to address the issues arising from competition from the other market players. use of technology in a large but judicious way provides relief in the form of more effective work processes, reduced costs of processing and the capability to handle relatively large transaction volumes with remarkable ease. the core banking concept to a great extent emerged from this centralisation process and has since received a complete and focused attention from all the banks for its rapid implementation. the banks have also undergone a massive change in terms of improvement in the it communication network which has greatly facilitated not only the networking of the internal communication processes but the integration with the external payment systems gateways as well. in regard to the implementation of ‘ core banking ’ and ‘ electronic banking ’ banks have made considerable progress in recent years as far as the centralization of customers ’ accounts are concerned ; however, we can also think of making it more useful by expanding the coverage of core banking systems ( cbs ) and all the essential services / banking products like treasury, customer relationship management ( crm ), corporate banking, management information systems ( mis ), etc. getting seamlessly integrated into the present cbs. the offering of electronic banking service channels like internet banking, mobile banking, real time fund transfer, atm applications and other forms of upcoming electronic banking channels have become important vehicles of offering banking services in a cost - efficient manner with wide geographical spread ; enhancing the banks ’ reputation and brand building addressing the competitive forces as well. we have also seen the developments in the communication network and messaging system in