This evidence of a close correlation between underlying inflation and the output gap bolsters our confidence in our inflation projections and in our framework for conducting monetary policy. The latest data show that total inflation remained right at the 2 percent target in July.
Even then, current developments do not suggest that new lending will cease completely, as growth in deposits remains positive. It is indeed imperative that banks undertake measures to attract deposits, and focus on productive use of more limited funds available for lending. More emphasis on deposit mobilisation and improved financial inclusion would be steps in the right direction towards a more mature banking sector.