commoditizing information that is perhaps not yet susceptible to such commoditization. a key question that has emerged from the current developments in financial markets relates to the role of monetary authorities in the context of such a crisis. this issue is of concern to all of us in central banking. over the last decade or two, it would appear that the focus of central banks has been narrowing, relative to the more complex responsibilities that they have traditionally shouldered. a great deal has been written on this issue, a great deal has changed in terms of practices and, in some countries, the regulatory structure itself has been altered to move central banks to being relatively pure monetary authorities. according to this view, central banks should focus largely on keeping inflation low and stable, and in doing this also contribute to financial stability. to quote harvard economist kenneth rogoff : " indeed many economists believe that central bankers could perfectly well be replaced with a computer programmed to implement a simple rule that adjusts interest rates in response to output and inflation. but while [ this ] view is theoretically rigorous, reality is not " ( businessworld, september 17, 2007 ). although some central banks, such as the us federal reserve, have an explicit mandate to also promote growth, a good deal of thinking in recent times tends to argue that inflation control by itself would promote growth and that central banks would be better off to concentrate on this objective alone. it is instructive to examine what central banks have done in the current context. the responses of the central banks to the recent events in financial markets have shown that concerns for financial stability can assume overriding importance, irrespective of the legislative mandate handed down to central banks as part of ongoing reforms. this is evident in the fact that central banks initially reacted through the injection of liquidity, including through special facilities and the expansion of list of eligible collateral. discussions involving central bankers in various fora indicate their willingness to consider other courses of action in favour of protecting growth. as we all know, the us federal reserve has gone further in cutting interest rates to promote both growth and in the interest of financial stability ; the u. k. authorities have had to provide liquidity to a specific institution, while giving a blanket guarantee to depositors on the safety of their deposits. accordingly, it is becoming evident that central banks do have a role beyond inflation targeting. evidently, both growth and financial stability matter for central banks. when it comes to the crunch, in their roles as lend

currency and money markets, the reserve bank ’ s policy approach has been to be increasingly vigilant and proactive to any incipient signs of volatility in financial markets. notwithstanding the progress made since the early 1990s, the reserve bank recognises that domestic financial markets need to develop much further, especially in order to support the recent acceleration in growth momentum of the indian economy and in the context of the envisaged move towards fuller capital account convertibility. the indian experience demonstrates that development of markets is an arduous and time consuming task that requires conscious policy actions and effective implementation. without real sector development in terms of the physical infrastructure and improvement in supply elasticities, the financial sector can misallocate resources, potentially generate bubbles and possibly amplify the risks. hence, financial sector reforms have complementarity with the pace and process of reforms in the real sector in india. given the large weight on stability, especially in view of low income levels for a large segment of the population, the careful and cautious approach to development of financial markets followed so far would need to be pursued in the coming years. the pace of further progress would depend upon the development of the necessary expertise in the public sector banks, further expansion of private sector banks and foreign banks. we recognise the need to develop further various segments of the domestic financial market to help in better risk management by various market participants. the demand for various risk management tools could be expected to increase, especially in the presence of potentially larger fluctuations in exchange rate and interest rates in the future. in recognition of the need to widen the range of instruments available to market participants, the reserve bank has placed draft guidelines on introduction of credit derivatives in the country. more recently, a draft report on the introduction of currency futures in india has also been put in the public domain for comments and feedback ; and work is in progress on the introduction of interest rate futures. summing up, it is widely recognised that the indian financial sector over the last decade has been transformed into a reasonably sophisticated, diverse and resilient system delivering a wide variety of financial services efficiently and profitably, with a spectrum of financial market segments in which financial institutions are able to participate with operational and functional autonomy in an environment of increasing deregulation and international competition. the acceleration of growth in the real economy suggests that the financial system has served well the overall needs of the economy. during this period, while the global financial environment has become more risky in the wake of new instruments