stood at 6. 1 percent in august 2010 compared to the same month of the preceding year. i must take the occasion to indicate that some important international reports have commended some of the kingdom ’ s achievements. one of these reports is the imf ’ s executive board ’ s assessment report of the kingdom ’ s economic developments which indicated that the saudi economy was prepared to encounter the global financial crisis due to its adoption of sound supervisory and regulatory frameworks and the prudent and macroeconomic policies followed over the preceding years. the board commended the kingdom for taking strong measures and increasing expenditure and for good management of the monetary policy. the fund appraised the kingdom ’ s efforts for maintaining the soundness of the banking system, improving the climate of credit and the positive economic outlook in general. it also supported the kingdom ’ s plans for resuming expenditure at sustainable levels and the government ’ s effort aiming at slowing the growth of domestic consumption of oil products. custodian of the two holy mosques, in pursuance of the government ’ s keenness to avoid the repercussions of the global financial crisis, the supreme economic council held a meeting, chaired by your majesty, on 16 shawwal 1428h ( 16 october 2008 ) to discuss the global financial crisis and the way to curb its potential effects on the national economy and it called for taking a number of actions to face it. in the area of monetary and banking policies, sama followed monetary policy aimed at achieving stability in the financial sector and providing the necessary liquidity to meet domestic demand for credit, by taking a package of proactive measures to enhance the liquidity position and reduce the cost of lending in order to ensure that banks continue their financing role in the development process in the kingdom. the most prominent measures were : reducing the statutory reserve requirements ratio, the repo and the reverse repo rates several times, enhancing the liquidity position in the banking system by placing long term deposits in local currency and us dollar with local banks on behalf of government institutions and organizations, reducing the pricing of treasury bills, facilitating foreign exchange swaps in order to provide the necessary liquidity in us dollar for the local banking system. as for fiscal policy, the government continued the expansion in public expenditure and increasing the pumping of funds to specialized lending institutions by an estimated amount of rls 40 billion during 2009. custodian of the two holy mosques, in spite of the adverse impacts of the successive financial crises, they clearly resulted in combining international

our business outlook survey interviews indicate that while companies plan to invest in new machinery and equipment, few are planning to expand their capacity, at least so far. this helps explain why business investment might be delayed relative to what would be expected in a normal cycle. this research has important implications for canada ’ s employment picture. we know that when companies restructure or close their doors, the associated job losses are usually permanent. if companies can meet increased export demand with existing capacity, the associated employment gains can be fairly modest, with most of the increase in output coming in the form of higher productivity. the bigger employment gains will come when we enter the rebuilding phase of the cycle – when companies are sufficiently confident about future export demand that they begin to invest in new capacity and create new jobs. these considerations enter into our estimation of the output gap – the difference between gdp and potential gdp – which is the key macroeconomic determinant of the outlook for bis central bankers ’ speeches underlying inflation. when the economy moves into a position of excess supply, inflation declines, and when it moves into a position of excess demand, inflation rises. there is no single preferred measure of capacity in the economy. traditionally, we have put the most weight on measures based on output, or gdp. each october, we do a full analysis of the determinants of potential output, and its future trend. we have done so in this mpr, but in future we will update this analysis in every mpr. this time, we also offer a special technical box that considers the dynamics of excess capacity in longer business cycles like this one. the reason this is important is that in such longer business cycles, the restructuring or closure of firms reduces potential output while creating permanent job losses. this means that the output gap can appear smaller than the labour market gap, which is our current situation. this difference persists until after the rebuilding phase of the recovery i discussed earlier, when the excess capacity measures eventually converge. our judgment is that we have considerable excess capacity and that continued monetary stimulus is needed to close the gap and bring inflation sustainably to target. but we take account of our uncertainty around the degree of slack by considering a range of possible slack estimates in our deliberations. another important building block of our policy framework is the neutral rate of interest. the neutral rate is the rate of interest that should emerge once all the dust has settled – inflation is on target, the economy is operating at its full capacity, and all shocks