favourable in 2010 due to the rebound of copper prices on the international market as well as the expected increase in copper production as some mines increase production to full capacity and the resumption of production at some mines. the rebound in the international price of copper in the second half of 2009 and the return of foreign portfolio flows resulted in an appreciation of the exchange rate of the kwacha by 4 % at the end of the year. however, fiscal performance in 2009 was weak, mainly due to the global economic crisis, which reduced domestic revenues. despite this, government remained within the programmed domestic financing for the year. december - 2009 inflation revised to 12. 0 % in the budget speech for 2010 presented to parliament on october 9, 2009. distinguished members, the financial sector has remained resilient despite the effects of the recent global financial crisis. currently, the zambian financial sector is characterized by high liquidity levels, reflecting tighter lending standards in the wake of the lessons from the global financial crisis leading to marked decline in private sector lending. as a result, the demand for the relatively risk free government securities has increased causing a decline in yield rates on government securities. the decline in government securities yield rates and relatively low inflation experienced since the beginning of the year should contribute to a decline in banks lending rates and thus stimulate borrowing by the private sector. i am aware that the high interest rates in the country pose a very big challenge for our manufacturers to borrow for recapitalisation and expansion of their businesses. access to finance is essential for the economy to grow and therefore it is necessary that we find ways that could reduce the cost of borrowing to allow key sectors to expand. ladies and gentlemen, i wish to reiterate that the economic fundamentals point to a reduction in lending rates. in a liberalised financial market environment, the central bank contributes to the reduction in lending rates by reducing inflation. the government also contributes by implementing prudent fiscal policy, thus limiting the incidence of crowding out of the private sector by the government. as a result, yield rates on government securities fall. as inflation and yield rates on government securities decline, lending rates are also expected to decline in the medium to long term as the two provide the relevant opportunity cost of lending to the private sector. another factor that commercial banks take into consideration in determining lending rates is the default risk arising from the poor credit culture in the economy in general. in resolving the problem of poor credit culture, the central bank through the financial sector development

##sparities are identified, however, national supervisors of outlier banks should be called upon to explain the results to their fellow supervisors, as well as steps they are taking to address situations in which differences may arise from systematic underestimation of risk or manipulation of capital ratios to achieve desired outcomes. any of these options would require the basel committee, international supervisors, and banking organizations to work together to address confidentiality concerns, as well as other jurisdictional issues. some options will surely prove more feasible than others. while we do not prejudge which will prove to be most effective, we do maintain that something of this sort is necessary in order to assure that the benefits for financial stability promised by see, for example, nout wellink ( 2011 ), “ basel iii : a roadmap to better banking regulation and supervision, ” remarks delivered at the fsi high - level meeting on the new framework to strengthen financial stability and regulatory priorities, st. petersburg, russia, may ; and stefan walter ( 2011 ), “ basel iii : stronger banks and a more resilient financial system, ” remarks delivered at the financial stability institute conference on basel iii, basel, april. bis central bankers ’ speeches international capital standards are in fact being realized, as well as to prevent some banks from enjoying competitive advantage through lax application of these standards. at the same time, any of these options will give banking supervisors from the countries represented on the basel committee an opportunity to work together to address the many issues of implementation, interpretation, and evasion that will surely arise under basel iii. thank you for your attention. i would be pleased to answer any questions you might have. bis central bankers ’ speeches