2016. the combination of a steady downward growth trend with upside risks to inflation compounded the dilemma facing monetary policy. at the last two mpc meetings, in may and july, moderate improvements in the inflation outlook and a moderation of the upside risks to the inflation bis central bankers ’ speeches outlook gave the mpc room to pause in the interest rate cycle. the mpc emphasised the continued data - dependence of future moves, as the factors that gave rise to the moderation of these risks could reverse very quickly. although the mpc remains ready to respond to renewed inflation pressures, it remains mindful of the weak state of the economy and will continue to support the economy to the extent possible within its flexible inflation targeting remit. the expanded mandate of the bank gives it responsibility for financial stability and this has been a key focus area during the past year. the financial sector regulation bill has been tabled in parliament, and it is expected to be promulgated during this year. the bill assigns responsibility to the bank to protect and enhance financial stability. the proposed prudential authority is taking shape, but pending finalisation of the legislative framework. this process has already had significant resource implications for the bank. at the microprudential level there has been the successful resolution of the african bank curatorship, and the creation of the “ good bank ” which commenced operations in april 2016. the domestic banking system remains sound and well capitalised. whilst the bank is an institution not driven by profit, the strength of the financial position of the bank is important for its independence. i am pleased to report that the group continued to be profitable in this past financial year. the group recorded an after - tax profit of r1, 58 billion compared with a profit of r0, 63 billion in the previous financial year. the bulk of the profit is attributable to the bank with an after tax profit of r1, 51 billion, up from r0. 34 billion in the previous year. this improvement in the financial position of the bank was attributable mainly to the increase in accommodation to banks and unrealised profits due to declining global bond yields and the depreciation of the rand against major currencies. the depreciation increased the rand value of the interest earned from investing the country ’ s foreign - exchange reserves. operating costs declined due to a reduction in the banknote order which lowered the cost of new currency. this decline was partly offset by higher staff costs.

how the credit facilities that schools extend to parents over the course of a school year enables poor parents stretch their budgets and afford this major investment in their children ’ s future. this also enhances the family capacity for the future. indeed, financial services are making themselves present at every turn for these families. finance is not a luxury, but absolutely a necessity in poor people ’ s lives, just as surely as it is for everyone. that is why when we look at the range of needs, we can focus on the pricing to make it sustainable and enlarge the market. • third, poor kenyans are in fact saving, but they are choosing to hold most of that savings in informal financial devices e. g. rotating group saving and lending. few other studies are able to tell us about money that kenyans are holding in informal financial devices, and one of the great values of the financial diaries is that it gives us this more comprehensive portfolio view especially as regards the mix of savings in banks and durable goods. as you know, the central bank is very concerned about savings. we know that achieving growth as a nation requires that deposits be available for productive investment. we expected that increasing the savings rate here in kenya is about getting our people to save more. but, we also know that this will be enhanced after a particular threshold of income is achieved and surpassed. the financial diaries report suggest that we may need to explore that more. perhaps in addition to saving more, we also need to save differently. in the diaries households, only 9 % of financial assets are being held in the formal financial sector and the balance in the informal segment. the authors of the report also point out that getting this kind of informal to formal shift is going to be difficult when savers want to see their money working. one advantage of the informal financial sector, that is, the non - organised non - institutional sector and in saccos and some mfis is that savings are more visibly deployed among other group members and in one ’ s own self. it is visibly doing a job, and that can be harder to see when returns on savings are low and the investments those savings finance are not immediately visible. i have no easy answer about how kenya ’ s financial sector can address this challenge, but it is an important insight that we need to understand better. how can bis central bankers ’ speeches we show people that their savings in the formal financial sector are in fact working? how can we improve the proportion of saving in