top priority of macroeconomic management, and put reining in inflation high on its agenda. in the first half of 2008, the pbc took the following measures to implement monetary policy : the first was to raise reserve requirement ratio to absorb excess liquidity. the pbc raised the reserve requirement ratio on many occasions. after the reserve requirement ratio was raised by one percentage point on june 7, except for certain financial institutions and quake - hit areas, the reserve requirement ratio of most financial institutions was 17. 5 percent. the rise of reserve requirement ratio absorbed a lot of liquidity, eased the inflationary pressure, avoided the rapid increase of interest rate, and contained hot - money inflows. the second was to flexibly conduct the open market operations. in light of short - term liquidity demand of the banking system and changes of fund demands of financial institutions in the first half of 2008, the pbc flexibly used a mix of instruments, rationalized their maturity structures, kept interest rate stable in the course of open market operations, guided market expectation, and conducted cash management of the state treasury when appropriate. the third was to strengthen “ window guidance ” and credit guidance. efforts were made to guide financial institutions to strengthen credit regulation and extend loans in a sound and balanced manner during the year, so as to prevent volatile movements of lending activities. measures were taken to encourage growth in some sectors while discouraging it in others and rationalize the credit structure. efforts were made to restrict loans extended to highly energy - consuming and highly polluting industries and industries with overcapacity. credit support was increased to some key areas, such as agriculture, rural areas and farmers, postdisaster reconstruction, small enterprises, the services industry and independent innovation, energy - conservation and environment protection projects, and credit line to small - and medium - sized enterprises was raised. the fourth was to improve the rmb exchange rate formation mechanism reform, and speed up the reform of foreign exchange system. efforts were made to deepen the reform of the foreign exchange system, appropriately guide the market expectation of rmb exchange rate, strengthen the monitoring over, analysis of and management of cross - border capital flows, and strengthen monitoring over abnormal cross - border capital flows in the trade sector and other areas ; to reform the foreign exchange system in trade in service on a pilot basis in some regions ; to allow more market participants on the foreign exchange market, and to promote the equilibrium of the balance of payments. the fifth was to

solved by the mortgage credit system. fundamental investor confidence in the creditworthiness and liquidity of the bonds is at the core of the danish mortgage credit system. it is essential to preserve this confidence and thus the safety of the system. the danish mortgage credit system plays a pivotal role in lending in denmark, and mortgage bonds are important instruments in the banks ’ liquidity management. in recent years, the credit rating agencies ’ changing views of the danish mortgage credit system have attracted much attention – by the mortgage banks and by the press. while there is general agreement that danish mortgage credit starts with an “ a ”, the question is how many “ a ” s a given business model and portfolio composition should have. today, i would like to make it clear that the purpose of regulating mortgage credit is not to ensure that all mortgage bonds are always “ triple a ” rated. regulation sets limits, within which the mort - gage banks must operate. where the mortgage banks choose to position their business models and risk profiles within these limits is up to the individual mortgage bank. a “ triple a ” rating may require a considerable margin to the limits – and if so, the mortgage banks must ensure precisely that if they want this rating. from a legislative perspective, it is fairly straightforward to make mortgage credit almost 100 per cent risk free. if the ltv limits are sufficiently low and the maturities of bonds must match the maturities of the loans, i am sure that this is possible. but at present legislation lays down minimum requirements that give the mortgage banks flexibility and room for manoeuvre. that imposes an obligation on each mortgage bank to keep a suitable margin to the limits and avoid a race to the bottom. bonds with the option of maturity extension – including if the interest rate trigger is activated – are gradually becoming the market standard as short - term bonds are refinanced. experience from the auctions shows that demand remains high – investors have accepted the new market standard. as we had expected, they do demand a modest excess yield of a few basis points, but they still bid heavily at the auctions, where bid - to - cover ratios were high in august and september. i am actually pleased to see that investors put a price on the interest rate trigger. that was basically the objective : to give investors an opportunity to calculate a price for the potential maturity ex - tension of bonds. with the interest rate trigger, it is not up to the authorities, in practice, to decide whether or not