. the global economy is recovering markedly and this should augur well for our exports and tourism industries, which are supporting the domestic economic recovery. on the sectoral performance, aside from the sugar industry, which continues to show low performance, recent data indicate continued strong growth in visitor arrivals and improvements for the gold and fish sectors. there is also some indication of modest increases in consumption activity with consumer spending aided by improvements in the labour market, increased lending and higher inward personal remittances. inflation declined further to 5. 4 percent in july from 5. 5 percent in june and is expected to further decrease to around 5. 0 percent by the end of the year. on the external sector, the trade deficit narrowed in the first five months of this year, thus keeping the foreign reserves at adequate levels. consequently, bank liquidity remains at high levels. overall, the domestic economy is showing sign of improvements however, the speed of recovery is slow. given the need to support economic activity and kickstart the economy, the reserve bank decided to maintain the overnight policy rate ( opr ) at 3. 00 percent during the august board meeting. capital markets in fiji ladies and gentlemen, let me brief you on some of the work that we are doing to develop the capital markets to another level. at the outset, i wish to state that a partnership approach will help progress this faster. as i mentioned earlier, two weeks ago we had a similar seminar in suva and i am happy to say that it was a great success. the rbf had also organised 2 microfinance expos – one in ba and the recent one last week during the hibiscus festival. financial literacy sessions by financial institutions, spse and some players in the capital markets were also carried out during these events. it was encouraging to see the general public at these two venues expressing interest and wanting to know more about the capital markets. in march this year, the reserve bank formed the capital markets development taskforce. the membership of the taskforce is mainly from the private sector with governor sada reddy as the chair. it was the rbf ’ s intention that the private sector involvement in the development of the capital market, similar to the cmda days, continued hence the formation of the taskforce. the taskforce will assist the rbf in strategising on how to tackle some of the longstanding challenges that have hindered the development of capital markets in fiji. “ grow your company, grow the economy

have a more significant economic impact in the longer run. issues for the domestic financial system last year ’ s financial stability report identified three major domestic vulnerabilities : the upward momentum in house prices, strong credit growth and rising indebtedness, and the adverse impact of increasing repayment burdens on the health of the household sector. since then, there have been a number of welcome improvements around these issues. firstly, the upward momentum in residential property prices has eased, reducing the vulnerability posed by the previous substantial increase in house prices. while house prices increased nationally by almost 12 per cent on average in 2006, they slowed significantly in the second half of the year. the slowdown continued this year and prices are now about 3½ per cent lower on a year - to - date basis. these developments should be assessed against the gains in house prices in recent years, where prices have risen by over 50 per cent between 2002 and 2006. house prices are now on average at mid - 2006 levels. concerns at that time that house prices would move further out of line with fundamentals, and that housing affordability would worsen, have lessened since last year ’ s report. regarding future house price developments, factors such as investors ’ participation in the property market, the sustainability of current rates of immigration, the cost of borrowing and the performance of the labour market are all important. the underlying fundamentals of the residential market continue to be reasonably strong. second, a welcome easing has taken place during 2007 in the rate of increase in privatesector borrowing, and the rate of accumulation of private - sector indebtedness has eased accordingly. ireland ’ s level of private - sector indebtedness, however, continues to be high by international standards. although a high level of indebtedness increases the vulnerability of the private sector to income and interest - rate developments, there are also important mitigating factors such as the sector ’ s high net worth and the positive outlook for the economy. when assessed alongside the slowdown in borrowing, these factors reduce this vulnerability somewhat. also, mortgage repayment burdens have generally increased in recent years – driven initially by the high rate of houses price inflation and, since late - 2005, driven by interest - rate increases. robust income growth as well as changes introduced in the last budget and the moderation in house price developments have worked to reduce repayment burdens since our last report. as well as these developments in the vulnerabilities highlighted in