caleb m fundanga : local bond market developments in zambia speech by dr caleb m fundanga, governor of the bank of zambia, on the occasion of the listing of the development bank of zambia bond, lusaka stock exchange, lusaka, 4 april 2007. * * * • the general manager – lusaka stock exchange • the chairman, dbz board of directors • the chairman, standard chartered • the secretary – securities and exchange commission • mr ade adebajo, director, standard chartered africa debt capital markets • member of the dbz board • all senior government officials present • acting managing director, dbz • managing director – zambia state insurance corporation • chief executive officer – stock brokers ( z ) limited • representative of dbsa • distinguished invited guests ; and • ladies and gentleman today marks another important milestone in financial sector development indicative of the coming of age of the zambian financial system in general and local bond market in particular. the issue of the k68. 620 billion senior unsecured floating rate note under the development bank of zambia ( dbz ) k150 billion medium term note programme and listing of the note on the lusaka stock exchange ( luse ) is a landmark transaction for two key reasons. the first is that this is the first time in the history of the local bond market that a local currency medium term note programme has been established. the second is that this transaction marks the largest single issue ever offered to zambian fixedincome institutional investors. ladies and gentlemen, the development of the local bond market is central to government ’ s strategy for diversification of the economy for one key reason. all businesses, including state owned enterprises, require finance, covering both equity and debt, and ranging from short - term to long - term. in the absence of a properly functioning local bond market, those in need of capital and qualified enough have had to turn to international financial markets to finance their local projects with the attendant exchange rate risk. similarly, those seeking a competitive return on their investments that also meet their maturity preferences but are unable to find these features locally, have always sought out alternative avenues offshore in foreign currency, thereby creating pressures in the foreign exchange market. therefore, government ’ s involvement in improving the local bond market has been deliberate. ladies and gentlemen, government ’ s participation in improving the functioning of the local bond markets has seen the establishment of appropriate market infrastructure that facilitates cost - effective and secure trading, and a transparent price discovery process. further,

have weakened considerably in the second half of 2022. some of this slowdown reflects the waning boost from the reopening of the economy, but higher interest rates have contributed. 1 / 3 bis - central bankers'speeches the economic outlook we know it takes time for higher interest rates to work through the economy to slow demand and reduce inflation. that's why policy needs to be forward - looking. guided by what we have seen so far and our outlook for economic growth and inflation, we think it is time to pause interest rate hikes and assess whether monetary policy is restrictive enough to return inflation to the 2 % target. if economic developments are broadly in line with our forecast and inflation comes down as predicted, then we shouldn't need to raise rates further. but if evidence begins to accumulate to show that inflation is not declining in line with our forecast, we are prepared to raise our policy rate further. in our january outlook, we expected economic growth to be close to zero for the first three quarters of the year. with growth in demand stalled, supply will catch up and the economy will move from excess demand to modest excess supply. this will relieve inflationary pressures. we expect cpi inflation to fall to around 3 % in the middle of this year and reach the 2 % target in 2024. we've already seen a momentum shift in goods prices. for inflation to get back to 2 %, the effects of higher interest rates need to work through the economy and restrain spending enough for supply to catch up. the tightness in the labour market needs to ease, wage growth needs to moderate, and service price inflation needs to cool. inflation expectations also need to come down and businesses return to more normal pricing behaviour. if those things don't happen, inflation will get stuck above our 2 % target, and additional monetary tightening will be required. the risks ahead there are risks around our projection. global energy prices could jump again, pushing inflation up around the world. inflation expectations could remain elevated in canada, or increases in labour costs could persist. overall, we view the risks around our inflation forecast as balanced, but with inflation still well above our target, we continue to be more concerned about these upside risks. i want to leave you with a few key messages. the decline in inflation since the summer is a welcome relief for the many canadians who are struggling to keep up with the rising cost of living. but at more than 6 %, inflation remains too high. to fight inflation