While there is credible evidence regarding the ability of countercyclical policies to enhance the resilience of the financial system, the evidence regarding their ability to dampen the buildup of financial imbalances is not unequivocal and credible. RBI had countercyclically raised risk weights and provisioning for certain sectors during the expansionary phase of 2004–08.
In this context let me say that the process of financial deepening, which is taking place in almost all countries that joined the EU in 2004 and 2007 will also support economic development as it is expected to promote more efficient investment.