of trade moved by large amounts. as a result, such adjustments to monetary policy as have been required have been gradual. when we appeared before you in august last year, the economy was in the midst of a mild pick - up in inflation. this was something that we had anticipated would occur, and to which monetary policy had already begun to respond, with adjustments to interest rates in may and august. as you know, there was a further adjustment in november, taking the cash rate to 6. 25 per cent, somewhat above its medium - term average. the background to the rise in inflation, and the associated adjustments to policy, is fairly well known. after a long period of solid economic growth, we have approached what for practical purposes can be called full capacity, at least for the moment. the evidence for this is quite widespread. in the labour market, we are as fully employed as we have been at any time in the past 30 years or more. the share of the working age population employed is at a record high, the rate of unemployment is at its lowest for a generation, and wider measures of ‘ underemployment ’ are also comparatively low. it may well be possible for these trends to go further yet, but a wide array of business enterprises the bank talks to have been saying for some time that it is harder and more costly to find appropriate staff, and that the factor most constraining further expansion is not insufficient demand, but insufficient capacity, either of labour or capital or both. approaching full employment is, of course, something to be welcomed. it is a goal of macroeconomic policy. if full employment is a ‘ problem ’, it is the one you would rather have than the problem of chronic unemployment. when we do not have full employment, it is appropriate – inflation considerations permitting – for growth in demand to be faster than normal in order to use the unemployed reserves of labour and capital. in the recovery from a business cycle downturn, that is typically what macroeconomic policies seek to achieve. but by the same token, once full employment is more or less achieved, the pace of expansion in aggregate demand that was earlier desirable will now be too fast. it has to slow a bit, to be more in line with the rate of growth of the economy ’ s productive capacity. otherwise, we would face the problems of overheating, inflation and eventually another downturn. it is that adjustment to more moderate outcomes for spending and output growth which we have been

will be leakages and other set - offs. but our external situation undoubtedly improves. the welcome development enhances our disposable income ( which will increase consumer demand for other goods and services ), reduce input cost of our businesses ( which will increase margins and help to enthuse investment demand ), and aid government finances by reducing the energy subsidy burden in the budget. let me conclude by quoting a participant at the inaugural session of this year ’ s vibrant gujarat global summit : “ india will be a bright spot in an otherwise mediocre global economic outlook ”. thank you, once again, for giving me the opportunity to speak at the 7th business standard best b - school project awards function. bis central bankers ’ speeches