both developed countries and emerging market economies ( emes ), found that among all the countries surveyed, india had the highest proportion of ceos, 40 per cent, who did not expect inflation to increase in coming years ( mckinsey quarterly, 2007 ). thus, it would appear that, at least, among business leaders, inflation expectations are wellanchored in india. although there has been above average growth in monetary and credit aggregates in the past 3 - 4 years, financial stability has been maintained through a judicious use of monetary and prudential measures. thus, the recent record of macroeconomic management in india is exemplary, even amongst the emes that target inflation. the challenge for monetary policy now is to reduce inflation further in the medium term towards international levels, while maintaining the momentum of high growth and preserving financial stability. ii. 2 banking sector in the post - reform period, banks have experienced strong balance sheet growth in an environment of operational flexibility. concomitantly, the financial health of banks has improved significantly, both in terms of capital adequacy and asset quality. moreover, this progress has been achieved while setting the groundwork for the adoption of international best practices in prudential and accounting norms. increased competitiveness and productivity gains have also been enabled by proactive technological deepening and flexible human resource management. these significant gains have been achieved even while renewing our commitment to social banking viz., maintaining the wide reach of the banking system and directing credit towards important but disadvantaged sectors of society. the banking system's wide reach, judged in terms of expansion of branches and the growth of credit and deposits indicates continued financial deepening ( mohan, 2006a ). on the liability side, deposits continue to account for about 80 per cent of the total liabilities while on the asset side, the shares of loans and advances and investments have seen marked cycles, reflecting banks'portfolio preferences as well as growth cycles in the economy. in this regard, while the share of loans and advances declined in the second half of 1990s on account of the industrial slowdown as well as tightening of prudential norms, banks'credit portfolio has witnessed sharp growth in the period 2003 - 07. the overall capital position of commercial banks has witnessed a marked improvement during the reform period ( table 3 ). illustratively, as at end - march 2007, all 81 scheduled commercial banks operating in india maintained crar at or above 9 per cent relative to the basel i

x p guma : low domestic inflation in an environment of high oil prices, vigorous household spending and credit demand and a widening current account deficit ; and the outlook for interest rates in south africa luncheon address by dr x p guma, deputy governor of the south african reserve bank, at investec, pretoria, 4 july 2006. * * * inflation in the world economy has declined significantly in recent years and has remained relatively subdued over the past few years despite a significant rise in commodity prices and strong economic growth. chart 1, based on world bank data illustrates the trend in world inflation, clearly showing the peak that occurred at a rate in excess of 35 percent per annum in the early 1990s and the rapid deceleration to rates around 5 per cent per annum thereafter. south africa ’ s inflation performance began to improve during the 1990s, as the next chart indicates ; and subsequent to the adoption of the inflation targeting framework, inflation as measured by cpix entered and has remained within the target range since september 2003. oil prices have risen sharply since 2003 ( as the next chart indicates ), on account of various determinants. during this year, the spot price of brent crude oil has increased dramatically from approximately us $ 59. 9 per barrel in february to levels around us $ 70. 5 per barrel towards the end of april and an average of us $ 68. 15 per barrel in june. continued brisk expansion in final consumption expenditure by households has been underpinned by a steady increase in household disposable income, continued buoyancy in the real estate and securities markets and what some describe as an accommodative interest rate environment. overall household debt as a percentage of annualised disposable income increased to a record level of 68 percent in the first quarter of 2006. robust growth in gross domestic expenditure and a concomitant strong increase in the value of merchandise imports resulted in a sizeable deficit on the trade account of the balance of payments in the first quarter of 2006. given the larger shortfall on the services and income account with the rest of the world and the somewhat subdued performance of south africa ’ s exports – notwithstanding the buoyancy of international commodity prices, the current account of the balance of payments registered a deficit equivalent to 6. 4 percent in the first quarter of 2006. interestingly, as others have observed, despite the sell - off in emerging markets since may, nonresidents have remained net buyers of south african financial assets and there have