year ended, we were finalising details for hiring an independent consultant to carry out this exercise. i have no doubt that the review would lead to a stronger and more transparent mpc, with greater focus on the real economy and its intricacies, and clarify the role of the central bank in preserving macroeconomic and financial stability. 12. financial and money market excess liquidity continued to plague the banking system during the year. the resulting aggressive bidding for treasuries drove short - term yields to all time - lows, accentuating the disconnect with the krr. two reasons can account for this unprecedented level of excess liquidity : ( i ) the substantial net redemption of government securities and ( ii ) the slowdown in the pace of credit growth in the wake of slackening economic activity. 13. to contain the growing level of excess reserves, we revisited our approach to monetary operations with the introduction of new longer - term bank of mauritius instruments. in august and september 2010, we issued bank of mauritius bills with maturities of 91 - day, 182 - day and 364 - day and bank of mauritius notes of 2 - year, 3 - year and 4 - year maturities. furthermore, we increased the cash reserve ratio on two occasions, from 4. 50 per cent to 5. 00 per cent in mid - june 2010, and to 6. 00 per cent in october 2010. with the implementation of these measures, banks ’ excess reserves briefly returned to normal levels. they started increasing again in december. 14. domestic foreign exchange market towards the end of 2009, the volume of transactions on the domestic spot foreign exchange market declined, causing some volatility in the market. we viewed the situation as being exceptional enough to warrant our intervention to maintain orderly conditions in the market. this led the bank to devise foreign currency swaps facilities tailor - made for the needs of the export - oriented sectors, to inject liquidity in the market, thereby avoiding the build - up of uncertainty in the system and hampering economic activity. 15. with the introduction of the foreign currency swaps facility, activities in the foreign exchange market rapidly returned to normal and liquidity conditions remained comfortable throughout the year. the notable exception was the unwarranted volatility and nervousness observed in may 2010. suspecting currency manipulation on transactions during the period 14 to 26 may 2010, we considered it vital to thoroughly investigate the matter. we retained the services of a forensic expert to probe

: it amplified these shocks leading the country into the deepest economic and financial crisis in a generation. financial crises are abrupt, costly and protracted affairs, and the chilean financial crisis of the early eighties was no exception. this crisis is often placed among the top 25 most severe financial crises in modern history. page 2 of 20 central bank of chile september 2019 in 1981, annual output growth went from positive 9 % in the first quarter, to 0 % in the fourth quarter, and to minus 14 % in 1982. that same year, unemployment reached a record of 25 %, and businesses all over the country were seriously hampered, ultimately affecting their solvency. banking profitability went quickly to negative territory and the delinquency rate quadrupled to 15 % of the total portfolio, putting several banks at risk. several factors contributed to the deterioration of the macroeconomic environment in 1982. external interest rates rose, the availability of external credit decreased, and terms of trade worsened in the wake of the escalation of oil prices. this put enormous pressure on the chilean peso — which had been under a fixed exchange rate scheme since 1979. this regime broke down dramatically and spread to almost all business sectors, given large fx exposures, and heavily leveraged financial conglomerates. page 3 of 20 central bank of chile september 2019 all these factors interacted with one another to become an outright banking crisis. nevertheless, whatever the causes of the crisis, unsustainable debt was mostly explained by internal vulnerabilities : inappropriate regulation, weak supervision, and lack of attention to excessive credit growth, leveraged on a fixed exchange rate scheme. the lessons learned from this crisis highlighted the fact that banking regulation and supervision needed to be substantially upgraded. in 1986, the general banking law introduced limitations on currency mismatch, constraints on related party lending, and restrictions for banks to be paid in kind instead of liquid resources. all of these elements were common practice before the 1982 crisis. paradoxically, what could be considered harsher regulation did not hamper financial deepening. instead, it fostered a systematic buildup of solvency and credibility of the banking system and allowed its healthy development in the ensuing decades. yet the 1986 banking law was hardly the only piece of the financial architecture that changed significantly. notably, the creation of a funded pension system, and subsequent capital market reforms, together with capital market openness, dramatically changed the size, composition, depth, and strength of the financial sector in chile. page