Exchange rates are yet another financial price that should be stabilised to effectively contribute to the promotion of the growth of the real estate industry, particularly that a substantial amount of building materials, such as, steel are imported. An unpredictable behaviour of the exchange rate can make investment in real estate unattractive. However, following the introduction of the Broad-based Interbank Foreign Exchange System (IFES) in July 2003, the exchange rate of the Kwacha against major foreign currencies, particularly the US dollar, has been relatively stable. The Kwacha appreciated by 2.6% against the US dollar in 2004, after depreciating by 7.2% in 2003. Other factors contributing to the relative stability of the Kwacha include strong performance of the external sector, prudent fiscal management, and the broad weakness of the US dollar in the international market. From the behaviour of the exchange rate of the  2  BIS Review 46/2005  Kwacha against major currencies, it is clear that, supported by effective supervision, foreign exchange market participants are able to police themselves and instil discipline in the market. Ladies and Gentlemen Allow me, at this juncture, to turn to the other function of the Bank of Zambia – that of ensuring financial system stability. As you may be aware, financial system stability is very critical to the maintenance of macroeconomic stability. As a matter of fact, monetary policy would not be effective in pursuing the inflation objective if the financial system were not stable, for monetary policy actions are transmitted through financial institutions.

Much as there are other building societies now, their impact on real estate finance is still minimal. Consequently, most of the people who are constructing nowadays are doing so out of their own funds. Since they are building using their own meagre resources, the quality of their structures leaves much to be desired and the projects take long to complete. This, in part, explains the mushrooming of shanty compounds I have alluded to earlier. What I have said clearly shows that there is need for new players in the real estate financing sector. To this effect, I wish to challenge the private sector to invest in the real estate financing business. Having said that, what is the role of the Bank of Zambia in enhancing investment opportunities in the real estate business? As you may be aware, the primary mission of the Bank of Zambia is to formulate and implement monetary and supervisory policies that will ensure price and financial system stability. BIS Review 46/2005  1  How does this tie in with real estate business? The relationship between real estate business and monetary policy and financial system stability is a much debated issue among academics and policy-makers, alike. The relationship brings to the fore important challenges involving policy design, financial regulation and risk management. In Zambia, however, like most other developing countries, we have had difficulties in quantifying the relationship due to paucity of reliable information on property markets, thereby limiting the scope for meaningful analysis as an input into policy formulation.