These tight monetary conditions along with the Government’s administrative measures to control food inflation helped in scaling down average inflation from 9.3 percent in FY05 to 7.9 percent in FY06, within the 8.0 percent annual target. This was certainly an encouraging development, particularly as it was achieved without affecting economic growth as the real GDP growth remained strong at 6.6 percent in FY06.
The objective of safeguarding the stability of the financial system can be duly taken into account only if such risks, which have hitherto been covered only indirectly, become subject to capital charges.