ernesto gouveia gove : the challenges in extending financial services throughout mozambique speech by mr ernesto gouveia gove, governor of the bank of mozambique, on the occasion of the xxxi consultative council, nampula, 26 january 2007. * * * honourable governor of nampula province excellency honourable president of nampula city council excellency distinct former governors of the banco de mocambique, dr. sergiovieira, dr. prakash ratilal, dr. eneas comiche and dr. adriano maleiane dear president of the national institute of statistics dear representatives of niassa provincial government dear members of the board of directors of the bm dear representatives of the financial institutions dear guests ladies and gentlemen first of all, i would like to express, on behalf of the board of directors and the employees of the banco de mocambique and personally, our satisfaction and gratitude for having accepted the invitation for a joint reflection on a current topic of our economy. your presence in this conference room is of indubitable meaning, since it shows the sympathy and commitment towards the common problems we face in our country and particularly in the financial system, whose solution overcomes the simple will of each of us. allow me to refer in a special way to the presence of the former governors of the banco de mocambique, personalities whose leadership and competence marked, at its time, the nearly three decades of the history of our institution. i would also like to take this opportunity also to express the profound regard of the banco de mocambique to all the banking institutions that operate in our market, the private and public financial institutions, the public in general and to all the international community, for all the support they have provided to elevate the financial system, contributing to the development of the economy and reduction of absolute poverty in the country. this is the second day of our xxxi consultative council. in yesterday ’ s session, besides the analysis of the implementation of the recommendations of the xxx consultative council, we analysed the execution of our strategic plan, the report on human resources, titled “ balanco social do banco ” and yet we discussed other important domestic matters, and stressed the relevant role of the colleagues who retired last year. ladies and gentlemen the recent history regarding the evolution of our financial system shows notable development and growth in terms of the number of institutions, diversification and modernization of products, thanks to the market opening

effective they have been. * * * for some years, major central banks have been intervening in fixed income markets with the intention of providing substantial amounts of stimulus to their respective economies and delivering on their mandates. their interventions ultimately rest on the same premise : when the overnight money market rate typically used by central banks as a policy instrument reaches a level that cannot be further reduced to any meaningful extent, the natural progression is to extend 1 / 5 bis central bankers'speeches the maturity range of interest rates that the central bank seeks to influence. this can be done in two ways, which strongly complement each other. first, by influencing expectations of short - term interest rates via signalling channels, and second, by central bank purchases of long - dated securities which crowd out private demand for such instruments, making them more expensive and thereby encouraging portfolio rebalancing. both instruments have the same purpose – exerting downward pressure on long - term yields. this is why they complement each other and rely on one another to be effective. asset purchases almost certainly enhance the credibility of a central bank ’ s signals that it will follow a certain course of action for setting policy rates in the future, as these purchases are a concrete demonstration of a desire to provide additional stimulus. so, the anchoring of rate expectations is reinforced by asset purchases. and, conversely, the net stimulus provided by asset purchases through compression of the term premia depends, in part, on expectations of how policymakers will adjust short - term interest rates in the future in response to the stronger real activity and inflation sparked by lower term premia. if short - term interest rate expectations are not well anchored throughout the life of the asset purchase programme and are allowed to creep upwards, then the entire exercise to ease financial conditions becomes self - defeating. this is why anchoring interest rate expectations is a key condition for asset purchases to deliver accommodative monetary policy. from this perspective, the ecb has been very effective in designing and implementing its programme. as demonstrated by the overnight index swap forward rate curve, once we launched our monetary policy package in mid - 2014, the short - to - medium segment of the curve, which arguably reflects investors ’ rate expectations most clearly, shifted down and became flatter ( see chart 1 ). this reaction is especially striking when compared to the us experience during the period in which the federal reserve carried out its large - scale asset purchases. one reason why interest rate expectations have been well - anchored in the euro area is