in our economies over time, every now and then, the governing council needs to consider the merits of the strategy it is pursuing. in this context, the guiding question is how we can fulﬁl our mandate in the best possible manner. the last time the governing council evaluated its strategy was in 2003. back then, the risk of inﬂation approaching very low levels was already on the minds of council members. as otmar issing stressed at that time : “ we have both eyes [ … ] watching deﬂationary as well as inﬂationary developments. ” since then, the ability of central banks to prevent very low rates of inﬂation through the conduct of interest rate policy has weakened. from a theoretical point of view, monetary policy needs to push the key interest rate in real terms below the natural rate of interest, or “ r star ”, in order to achieve an expansionary stance. thus, “ r star ” is often regarded as a navigational guide for monetary policy, just as celestial stars used to guide sailors across the seas. but unlike the stars above our heads, the natural rate isn ’ t ( tonne ) something we can observe directly. instead, we must resort to models and econometric methods to estimate it. often, “ r star ” can only be gauged with very wide uncertainty bands, while the estimated level may vary greatly across the methods and data used. moreover, “ r star ” is not ﬁxed over time. fundamental forces such as demographic trends or productivity growth may shift it. indeed, the empirical evidence across advanced economies points to a secular decline in the natural rate of interest that started back in the 1980s and has continued since 2003. the resulting implications for monetary policy are challenging. at last year ’ s jackson hole conference, philip lowe, the governor of the reserve bank of australia, referred to them as “ the [UNK] of navigating when the ‘ stars ’ are shifting ”. in particular, central banks around the world are searching for ways to respond to the decline in the natural rate. since policy rates may hit the lower bound more and more frequently, the leeway of traditional interest rate policy has diminished. in this context, the federal reserve ’ s shift to a variant of average inﬂation targeting and the clariﬁcation regarding the high importance it attaches to its employment objective grabbed the headlines recently. [ 6 ] it is worth highlighting that we do not have a dual mandate like the federal reserve.

of 8 – 10 % in the next five years and funds required for infrastructure development. presently as industrial growth is in the phase of stagnation and infrastructure well below satisfactory levels due to a varied set of factors around policy action, the demand for funds has not really reached the expected levels. evidently this should not give rise to complacency and we should work in this period in building structures for growing our corporate debt market. need to develop the corporate debt market 9. the government has its own limitations when chipping in as the fiscal responsibility targets leave little scope for finding funds. though the commercial banks do cater to the bis central bankers ’ speeches investment needs of corporate and infrastructure sectors, they are also reaching their own limitations. we have gotten support from fdi and external borrowings, but they have their own pace and size. external borrowings are a good way out when global interest rates are low. but, the repercussions on our external debt are significant, and while we have been permitting ecbs into various sectors, the external debt levels have been rising which has servicing implications. intuitively we can see that the capital market has to become progressively more relevant in this process of garnering long term funds. 10. economists contend that the absence of an adequately sized corporate debt market leads to an oversized banking system in any economy. it also results in a large portion of the lending market being excessively regulated, without being subjected to free market forces. such an imbalance is not desirable, because this becomes the perfect breeding ground for crony capitalism, sloppy lending by banks and careless investments by corporates. financing of resources through corporate bonds rather than bank finance instills a greater sense of credit discipline among the borrowers as the default events are captured immediately and placed in the public domain. the disclosure requirements act as a big disincentive for default or delayed payment. it has been observed that borrowers take the regulatory norm of 90 days period for a default to be recognised as a non - performing asset as a leeway for withholding the payment till the 89th day from the due date. on the other hand, even a single day default by an issuer of corporate bond will be recognised as default in the market and the information of default will be publicly available. further, such information / risk will also be reflected in external credit ratings and traded credit derivatives on a real time basis. pricing of credit also gets diluted in bank financing as credit facilities are extended not only