Many of the relative price movements churning the current inflation numbers will likely prove to be temporary. But the recent pattern of persistently higher-than-expected rates of inflation, together with other signs of capacity pressures, may be indicating that our economy is operating closer to capacity than the Bank had previously thought.
In India, we are proceeding gradually to a more open and participative process monetary policy formulation, which will be covered by my colleagues later in the seminar. The growing importance of communications by central banks is on account of their responsibility for maintaining financial stability – which includes but goes beyond the conduct of monetary policy.