caleb m fundanga : develpments between the bank of zambia and the lusaka stock exchange opening remarks by dr caleb m fundanga, governor of the bank of zambia, at the luse / besa / boz workshop for secondary trading of government bonds, lusaka, 3 march 2008. * * * the chairperson, resource persons, workshop participants, distinguished ladies and gentlemen, i am honoured for the invitation extended to me this morning to officially open this important workshop on secondary market trading for government securities. to begin with, i wish to commend the lusaka stock exchange ( luse ), the organizers, on the timeliness of this workshop. i have little doubt most of you will agree with me that this discussion on the secondary market is long overdue and therefore could not have come at a better time. dialogue among key stakeholders is invaluable to the success of market development efforts. this is particularly so because this allows each participant to share and learn from their diverse experiences in this area. i must say that this workshop addresses a subject in which i personally take keen interest. this is because i have, over the recent past, participated in a number of meetings with key investors in our securities market. at these meetings, issues surrounding the development of the secondary market have always been at the centre of our deliberations. i am glad that we have now began to address those very issues. this workshop also demonstrates the stakeholders ’ commitment to support the market development efforts as outlined in the financial sector development plan. chairperson, over the recent past, the zambian economy has performed well. this is reflected in a number of the key macroeconomic indicators. to mention but a few ; the growth rate in real gross domestic product ( gdp ) has remained positive and above 5 %, we attained single - digit inflation, relative stability in the exchange rate of the kwacha against major currencies, stable financial sector and improved banking services. these impressive economic trends suggest that the reform programmes that have been implemented are now bearing fruit. the reforms have focused on the restructuring of the economy, to let markets determine key decisions so as to allow the private sector lead, which has provided for increased investment in the economy. it is the contention of many financial analysts that there is no better market to determine prices than the secondary market. in that regard, this workshop is vital. ladies and gentlemen, the importance of a secondary market cannot be overemphasized. by facilitating a ready

with expectations that have been raised by the remarkable stability of inflation during its first two years? second, how can the mpc build a constituency for low inflation? despite the openness and transparency of the new monetary framework, the british, indeed the world, economy often moves in mysterious ways. monetary policy is decision - making under uncertainty. that is why mpc projections are published as fan charts, not as point estimates. the lags between a change in interest rates and its effects on output, demand and, ultimately, inflation mean that rough weather and occasional storms in the world economy are likely to blow us off course, at least for a time. a true test of the mpc is not whether it hits the target when the sea is calm, but how it reacts to the storms, or economic shocks, that will inevitably arise. the most immediate challenge for the mpc is that, although inflation may fall below the target over the next year, before long the inflation prospect further ahead will depend more on domestic inflationary pressures than it has over the past year or so, when external factors made a major contribution in holding down retail price inflation. lags mean that the mpc needs to look ahead. the test of the mpc will be how it responds to the inflation prospect. even in the absence of unexpected shocks there are major uncertainties. trying to understand changes in the way the economy behaves is a crucial part of the mpc ’ s work. in recent years we have seen a combination of lower inflation, lower earnings growth and faster output growth than previous relationships would have led us to expect. the reasons for this benign combination of growth with low inflation are not easy to diagnose. some have talked about a new era or a “ new paradigm ”, in which productivity growth has permanently risen. we should be cautious about those who speak of new paradigms. paradigm is a word too often used by those who would like to have a new idea but cannot think of one. optimism about growth rates has been greatest in the united states, which is hardly surprising given the recent performance of the us economy. but wiser heads counsel caution. alan greenspan has argued that, although there is evidence of a structural shift in the level of productivity, the laws of supply and demand have not been repealed. eventually the old relationships will return. if the uk economy moves in mysterious ways, it does not always perform wonders. a comparison between the us and uk is instructive. in both