but the problems could become tangible in a couple of years ’ time. this means that there is a risk that economic policy, which is very expansive in order to avoid a strong downward spiral, would postpone the adjustment of imbalances in the economy. some parallels can be drawn with the events that took place after the crisis in 1987, when a financial bubble recurred. a further example of an asset bubble way back in time is what happened in the usa in 1927. at that time, the us central bank pursued an expansive monetary policy in order to stabilise the gold standard. this contributed to an over - valuation of assets and later to the crash in 1929. if the financial imbalances in the usa are not corrected slowly in the near future, there is a risk that the economic upturn will be more short - lived and the downturn more powerful when the correction is finally made. on the other hand, the continued developments in the usa will depend on whether domestic demand picks up and is maintained. if the growth in productivity has really reached a bottom level at around 1. 5 per cent in an economic downturn, this could be a sign that the long - term sustainable growth rate in the usa has moved upwards and that a recovery will not merely be temporary. looking at sweden, it was assessed in the december inflation report that the gdp had shown weak growth during 2001 and that it would then rise during 2002 and 2003. the main features of the picture we pained in the inflation report still stand. however, according to the national accounts for the first three quarters of last year, the development in private consumption was weaker than had been assumed. there are other statistics that indicate that the gdp may have been stronger during 2001 than shown in the national accounts, for instance, credit growth, money supply, tax payments and developments in employment. regardless of what is correct, we appear to have had a relatively moderate slowdown during 2001. industrial activity has been very weak, but this has been balanced by the expansive economic policy contributing to other sectors in the swedish economy developing well. the question is how much of the slowdown in the industrial activity will have time to spread to other parts of the economy before there is an upturn in industrial activity. for the future we see a very good development in disposable income, some recovery in household wealth and continuing low oil prices, which should provide a stronger growth in consumption both this year and next year. the situation on the labour market

mr. rangarajan elucidates the monetary and credit policy of the reserve bank of india for the first half of the 1997 - 98 financial year address by the governor of the reserve bank of india, mr. c. rangarajan, at the madras chamber of commerce and industry at chennai on 19 / 4 / 97. i would like to take this opportunity given to me to speak to you this afternoon to focus on the monetary and credit policy for the first half of 1997 - 98 which was announced a few days ago. it may be useful at the outset to review the major developments during 1996 - 97. 2. the growth rate of broad money ( m3 ) in 1996 - 97 was 15. 6 per cent which was within the targetted band of 15. 5 - 16. 0 per cent. the real gdp is expected to have grown by 6. 8 per cent. the inflation rate as measured by the change in the wholesale price index was 7. 3 per cent on a point - to - point basis. a notable feature of 1996 - 97 was that the money and foreign exchange markets were generally calm in contrast with the turbulence witnessed in these markets in the previous year. a strong growth in bank deposits, coupled with substantial reduction in cash reserve requirements resulted in abundant liquidity in the system. however, the off - take of bank credit was subdued. short - term money market rates have moved down as a result of the easy liquidity conditions. lending rates are known for their stickiness and remained at high levels during the first half of 1996 - 97 but softened later. there has been a strong accretion to the foreign exchange reserves. the slow growth in non - food bank credit, the persistence of relatively high lending rates despite comfortable liquidity in the banking system and the acceleration of inflow of funds from abroad call for active monetary and exchange rate management by the reserve bank. 3. while the overall growth momentum has been sustained in 1996 - 97, divergent trends were observed in various sectors with agricultural output showing an impressive recovery and industrial growth slowing down. even within the industrial sector, the decline in growth rates in mining and electricity sectors was sharp. the inflation rate at 7. 3 per cent was a matter of concern. while manufacturing prices rose only by 5. 1 per cent, primary articles recorded an increase of 8. 3 per cent. during 1996 - 97, procurement of foodgrains was low, while the off - take was high. with the result, buffer