strong foundations and basic institutional framework, relates to the pace of further deregulation and liberalisation, consistent with the progress of reform in the real and fiscal sectors. the reserve bank and the commercial banks have been preparing to implement basel ii. in practice, within the given legal framework, priorities have to be appropriately set ensuring implementation of intended reforms in banking sector in tune with the evolving domestic and external developments. ( ii ) financial markets – efficient and developing development of financial markets received a strong impetus from financial sector reforms since the early 1990s. reforms in financial markets were carefully sequenced ensuring that they were in sync with the real sector. the reforms were also important for developing the environment for effective monetary policy making and monetary transmission mechanisms. as in other areas of reform, a gradual approach was followed in respect of development of financial markets. this has served india well since it helps in continuous rebalancing of the various elements depending on global and domestic developments and thus maximises benefits while minimising costs associated with the process of financial integration. in this approach, the pace and sequencing of financial liberalisation could be tempered keeping in view the degree of comfort in moving forward in a credible way. gradualism also enables harmonisation with reforms in other sectors of the economy. a wide range of regulatory and institutional reforms were introduced in a planned manner over a period to improve the efficiency of financial markets. these included development of market micro structure, removal of structural bottlenecks, introduction / diversification of new players / instruments, free pricing of financial assets, relaxation of quantitative restrictions, better regulatory systems, introduction of new technology, improvement in trading infrastructure, clearing and settlement practices and greater transparency. prudential norms were introduced early in the reform phase, followed by interest rate deregulation and gradual lowering of statutory pre - emptions. these policies were supplemented by strengthening of institutions, encouraging good market practices, rationalised tax structures and enabling legislative and accounting framework. going forward, a judicious mix of appropriate policy, strong macro economy and sound and resilient financial system would be necessary as the indian economy moves up in the ladder from an emerging market economy towards a more mature economy. as development of financial markets is an ongoing process, initiatives to further deepen and widen the various segments of financial markets would have to be continuously pursued. as the economy ascends a higher growth path, with greater opening up and financial integration with the rest of the world, the financial sector development in all its aspects will

promoting global coordination to minimize spillover and to contain debt. governor tombini emphasized that fiscal legacy has generated multiple equilibria for central banks and emphasized the importance of fiscal consolidation for overall macroeconomic stability. governor subbarao underscored that the new trilemma is not only an economic issue but also an issue of institutional architecture. he emphasized on the need for explicit, though not exclusive, mandate for financial stability for rbi. governor anwar indicated that the old trilemma continues for edes because of the spillover effects and emphasized the importance of communication among the central banks in the region. managing director mr. menon emphasized that central banks should try to be independent within the government rather than of the government and also highlighted the role of financial markets in addressing the trilemma. governor najeeb underscored the independence of central banks, particularly in edes, to enhance policy credibility. martin wolf emphasised that the global economy has changed with a series of shocks over the past 5 to 6 years, questioning the self - sustaining nature of financial markets. this underscores the increased role of public policy in the financial sector, greater responsibility for the central banks in the economy and enhanced global co - ordination. at the end, let me list out some of the major takeaways from this conference. first, the new trilemma is a reality, and fiscal discipline is critically important for financial stability and price stability. second, interaction between sovereign debt and monetary policy is an important determinant of market confidence. a comprehensive fiscal exit strategy should explicitly recognize the objective of a sustainable public debt ratio and policies that should underpin a fiscal adjustment path. third, right balance between growth in the financial sector and real sector is important to prevent imbalances. warning signals always flash before the crisis. often imbalances are ignored, even if identified earlier. leaning against imbalances could be less costly than cleaning up later. fourth, macro prudential measures are useful, but their effectiveness in preventing crisis is yet to be tested. these tools need to be fine - tuned. thank you for your kind attention. bis central bankers ’ speeches