The currency we issue is a liability of the Reserve Bank. It has, therefore, to be backed by assets. Earlier on, the Reserve Bank too was part of the theology of the gold standard – the belief that issue of currency should be backed by the gold holdings of the central bank.
In addition, the balance of risks has shifted over the past two quarters, with a number of downside risks receding and some upside risks emerging. In particular, the latest international economic data have suggested waning downside risks from abroad, while continued labor market strength and the prospect for fiscal stimulus in the United States present a possible upside risk to domestic demand.