the markets for such instruments as corporate bonds and cp continue to improve owing to a decline in market interest rates and the more active stance of investors to take credit risks. on the other hand, credit demand in the private sector seems to be declining slightly faster due to a decrease in business fixed investment while firms continue to reduce their debts. in view of this, private banks ’ lending remains sluggish. meanwhile, the growth rate of amount outstanding of corporate bonds issued is on the gradually rising trend, reflecting the favorable environment for issuing corporate bonds. the amount outstanding of cp issued is well above that of the previous year and marking the highest level to date. the growth rate of money stock ( m2 + cds ) in july was slightly higher than that of the previous month due mainly to the inflow from postal savings. funding costs for firms continue to be at extremely low levels. in this financial environment, the lending attitudes of financial institutions and corporate financing conditions remain easy as a whole. for the time being, attention should be paid to the effects of the monetary easing measures taken by the bank, while careful monitoring is required for the effects of stock price developments and corporate profit conditions on the behavior of financial institutions and the fund - raising conditions of firms.

high agricultural and mineral export receipts, combined with inflows related to the construction phase of the png lng project. the kina appreciated against the australian dollar by 8. 3 percent to a $ 0. 4276 over the same period. the appreciation was attributed to cross currency movements, as the australian dollar weakened against the us dollar. as a result, the trade weighted index ( twi ) appreciated by 12. 6 percent during the same period. the real effective exchange rate ( reer ) also appreciated by 7. 6 percent during the december quarter of 2011 ( see chart 3 ). the increase in international reserves led to the growth in money supply and liquidity. annual growth in broad money supply ( m3 * ) and monetary base in 2011 were 17. 3 percent and 61. 7 percent, respectively. the increase in broad money supply resulted mainly from increases in nfa of the depository corporations, while the substantial growth in monetary base mainly reflected increase in commercial bank deposits at the central bank. lending to the private sector continued to grow moderately as a result of firms utilising own funds while those associated with the png lng project received funding from the project. the bank issued net new central bank bills ( cbbs ) totaling k1, 102. 0 million, to diffuse some of the bis central bankers ’ speeches excess liquidity. however, domestic interest rates continued to fall, given the persistent high level of liquidity, with cbb rates at around 2. 0 percent and treasury bill rates at around 3. 0 percent. total liquidity of the banking system further increased by 37. 2 percent to k8, 888. 4 million in 2011, due to high government expenditure and foreign exchange inflows. net claims on the government declined by k846. 7 million in 2011, mainly due to increased deposits in the trust accounts. in the first quarter of 2012, the bank issued additional net cbbs of k92. 4 million. excess liquidity continued to remain high, therefore the bank increased the crr by an additional 1. 0 percent. in 2012, broad money supply is expected to increase by 14. 8 percent, driven mainly by increase in nfa of the banking system. monetary base and private sector credit are projected to grow by 33. 2 percent and 7. 0 percent, respectively. the bank considers the projected growth in monetary aggregates appropriate to support economic growth, but is also mindful of their inflationary impact, for