tapering off will help to keep in check any overheating in these sectors of the economy. while the longer - run inflationary trend ( or core inflation ) remained subdued with the inflation rate for 2000 registering 3. 6 per cent compared with 3. 4 per cent in 1999, short run supply shocks continue to impact the level of retail prices. in 1998 floods and drought contributed to a spike in the annual inflation rate. a similar situation occurred in 2000 as flood damage adversely affected the supply of fruits and vegetables in november and as a consequence prices rose sharply towards the end of the year. since then average consumer prices have fallen in january and march with the inflation rate for the first quarter set at 1. 5 per cent compared with 2. 7 per cent in the fourth quarter of 2000. the improvement in the country ’ s terms of trade in 2000 was reflected in the fiscal accounts as buoyant oil prices contributed to an almost balanced budget for the fiscal year 1999 / 2000. the trend of higher than budgeted oil prices continued into 2001 and into the new fiscal year. preliminary evidence suggests that for fiscal 2000 / 2001 the central government will achieve an overall surplus of just under 0. 5 per cent of gdp. indeed for the first six months of the fiscal year, the government recorded an overall surplus of $ 473 million as actual oil prices averaged around us $ 30 well above the budget estimates. despite this performance there are some downside risks to the fiscal position. the downside risks arise from the possibility of a sharp reversal in the terms of trade with oil prices falling well below us $ 20 as well as the inability of the central government to keep the reins on the transfers and subsidies element of the budget – especially transfers to public enterprises and utilities. preliminary estimates show that transfers are projected to rise from 7. 8 per cent of gdp in fiscal 1998 / 1999 to 9. 2 per cent in the current fiscal year. while the central government may achieve an overall budget balance in the current fiscal year we at the central bank continue to focus on the high level of fiscal injections associated with these activities as there are implications for liquidity management. during fiscal 1999 / 2000 the central government established a revenue stabilisation fund in which it is estimated that two thirds of the excess of actual oil revenues over budgeted revenues will be placed. at the end of the fiscal year just over tt $ 400 million was placed into this fund and given the general trend in oil prices for the current fiscal year a

similar amount may accrue to the fund. for those economies which are dependent on non - renewable resources such as oil and gas, the depletion of the countries wealth over time raises issues of inter - generational equity and fiscal sustainability. the establishment of a revenue stabilisation fund goes some way towards addressing these issues. money, credit and interest rates as you are aware our current monetary policy framework is focussed on liquidity management and exchange rate stability which is directed towards ensuring internal and external price stability – the internal and external value of the currency. liquidity conditions must be managed to ensure that business credit is not retarded especially during periods in which the public sector is a major player in the money and capital market. during 2000 private sector credit by the commercial banks expanded by 14. 5 per cent compared with a 12 per cent growth in the previous year. these developments were taking place alongside an increase of 30. 5 per cent in credit by non - bank licensed financial institutions reflecting an increase in the holdings of private sector investments. it is against this background understandably that credit growth from the commercial banks has slowed in the first few months of 2001. all components of credit fell except credit to business firms which grew by 4. 4 per cent in the first two months of the year. nonetheless private sector credit as a percentage of gdp remains at around 38 per cent of gdp around the same levels as were evident in 1999 and 2000. over the past several years many businesses relied on overdraft financing as their preferred method of business finance. the high cost of financing these operations, the imperative for many firms to be internationally competitive, the improved economic climate and the generation of internal sources of funds ( retained earnings ) suggests that more business firms may wish to change the nature of their business finances as they begin to generate more internal funds and begin to make more use of the domestic capital market. cash reserve requirements for commercial banks the growth in credit over the past two years has taken place against the backdrop of a growing economy, large fiscal injections, a prime rate of 16. 50 per cent and a cash reserve requirement for commercial banks of 21 per cent of designated liabilities – that is deposit liabilities and other fund - raising instruments. at 21 per cent the cash reserve ratio for commercial banks is relatively high and indeed represents high intermediation costs. the central bank is committed to lowering the cash reserve requirement over the medium term especially as the bank moves away from a reliance on direct instruments of control