. this includes about us $ 40 billion liabilities of public sector companies – mainly in the petroleum, railways and power sectors - which have assets with a natural hedge character. besides, being public sector entities, their foreign exchange risk – if any – can be absorbed by the government. such a contingency is unlikely to arise. the remaining us $ 39 billion ecb represents 22 % of the total ecbs outstanding. even this includes borrowings of those companies which have a natural hedge, i. e. earnings in foreign currencies. this would leave a very small portion of the total outstanding ecbs that are truly unhedged. corporate entities eventually face a trade - off : if they hedge their forex exposure completely, the cost of borrowing goes up and the advantage of cheaper borrowing in foreign currency is lost. on the other hand, to the extent they do not hedge, debt servicing can go up when the exchange rate is under pressure. this has led to the concept of the optimal hedge ratio which calculates the proportion of hedging that mimimises the variance of the portfolio. for india, our internal research estimates the optimal hedging ratio at 63 per cent. taking into account natural hedges and the exposure of public sector companies, the optimal hedge ratio condition is comfortably satisfied in the case of the stock of ecbs in india ’ s external debt. 10. due to the rbi actions, including measures to encourage inflows, the movements of the rupee have been relatively smooth and orderly. by eschewing sudden and volatile shifts, we have ensured that expectations remain anchored and the forex market functions in a stable and liquid manner. we will continue to engage with the forex market and ensure that the rupee finds its level in line with its fundamentals. i would like to reiterate that we have no particular level of the rupee in mind, but we would like to ensure its orderly evolution and we have zero tolerance for volatile and bumpy movements. banks are special – expected to be permanent entities 11. banks are special and not like any other commercial entity. they are not just the custodians of shareholders ’ interest but more fundamentally the trust of the depositors. depositors are at the very core of the banking system. protection of depositors ’ interest is paramount to a robust, reliable and stable financial system in the country. it is important for banks to always remember that the funds they deploy belong to depositors and this should reflect

challenging conditions. theme of the seminar the theme of the seminar assumes significance in this milieu. with inflation broadening across national jurisdictions, repeated shocks stemming from the outbreak of the pandemic and more recently due to the war, have translated into an inflation crisis not seen in years. according to the imf ’ s world economic outlook update of july 2022, surging commodity prices and broadening price pressures may cause inflation to reach 6. 6 per cent in 2022 in advanced economies and 9. 5 per cent in emerging market and developing economies, posing a clear and present danger to macroeconomic stability. in response, the most synchronised and front - loaded monetary policy tightening ever seen in decades is underway. consequently, as liquidity and monetary conditions harden, the probability of a recession or hard landing has risen in advanced economies to levels that have preceded actual recessions in the past. central banks all over the world are aggressively striving to regain and entrench their credibility so as to anchor inflation expectations and bring inflation under control. despite the diversity of the south asian region in terms of country size, economic and social development, geography, population, trade and political systems, this daunting spectre of inflation haunts us all. food is a large part of our average consumption basket as well as our price indices – its share in consumer prices ranging across the region between 35 and 47 per cent. south asia is most vulnerable to food inflation, given the large segment of our populations battling poverty. moreover, this is a region in which it is rising food prices that can trigger second round effects leading to the generalisation of inflation and its persistence. furthermore, dependence on oil imports has made our countries commonly vulnerable to terms of trade and supply shocks. consequently, inflation dynamics in the region show strong co - movements, with common drivers. on the other hand, our policy frameworks are somewhat diverse, reflecting countryspecific circumstances, and this will condition our approach to controlling inflation. our exchange rate regimes also reflect this diversity. dealing with the inflation crisis has become complicated as we battle global spillovers on an ongoing basis. the region now faces a tremendous developmental challenge within which recovering the losses due to black swan events like the pandemic look the most formidable. our countries have also experienced sharp increases in fiscal deficits and deterioration of the balance of payments. the future appears uncertain and gloomy against the backdrop of an unprecedented slowdown in economic activity, employment and export earnings.