I want to use this opportunity that you have provided me to communicate to you some of the complexities and dilemmas in real world policy making, and I will do so from the perspective of the Reserve Bank of India (RBI). What is the appropriate monetary policy response to complex growth-inflation dynamics? 4.
In this context, during the second half of 2011 two unprecedented events led to a period of heightened uncertainty in financial markets and significantly deteriorated global economic prospects: first, the downgrade of the U.S. sovereign debt by one credit rating agency in early August, and second, the worsening of the sovereign debt crisis in Europe, combined with a heightened perception of weakness in the European banking system, followed by the increasing risk of contagion across markets and countries.