was purchased during the first three months of 2011. going forward, the bank will continue to work closely with national treasury to continue building reserves. the bank ’ s policy remains that of accumulating reserves and not of defending or achieving a particular level for the exchange rate. the exchange rate remains market - determined, and any speculation that the bank may currently have a preference for a stronger currency or may have even been selling foreignexchange reserves is misplaced. bis central bankers ’ speeches the bank continues to manage the country ’ s official foreign - exchange reserves in a prudent manner, and has continued its successful partnership with its external private and officialsector fund managers. 3. 3 market development initiatives the financial markets liaison group ( fmlg ) is a joint initiative between the bank and key participants in the financial markets. the objective of this consultative forum is to promote the efficiency, integrity and stability of south africa ’ s financial markets, and to discuss international market and structural developments that could affect domestic financial markets. the fmlg, which emerged from the money market liaison group, has recently been reconstituted and held its first meeting in november 2010. the november 2010 meeting was preceded by several meetings of the sub - committees comprising the fmlg, namely the money market, foreign exchange and fixed income and derivatives subcommittees, and progress on a wide range of projects was reported. these projects include, among others, investigating the maturities of sarb debentures and longerterm reverse repos ; the pricing of floating rate notes in the secondary market ; the impact of algorithmic trading on the foreign - exchange market ; the monitoring of the over - the - counter ( otc ) market in foreign - exchange derivatives ; and the revision of reference rates in the money market. a working group was also established to review credit value adjustments ( cvas ) and credit support annexures ( csas ), which might impact the efficiency and liquidity in the interbank derivative market. 4. concluding remarks let me conclude by thanking you for your co - operation during the past financial year. we may find that when we gather here next year, the financial and economic landscape may be vastly different to what it is today. no doubt the future holds surprises and interesting challenges in store for us, but i trust that the spirit of co - operation and co - ordination that we have developed in our financial markets over the years will allow us to rise to these challenges. in conclusion, i should also

few signs of acceleration. thus, the rise in underlying unit labor costs has been mainly the result of the slower growth of output per hour. at the same time, evidence of increased pricing power can be gleaned from the profit margins of nonfinancial businesses, which have continued to press higher even outside the energy sector. whether that rise in unit costs will feed into the core price level or will be absorbed by a fall in profit margins remains an open question. among the biggest surprises of the past year has been the pronounced decline in long - term interest rates on u. s. treasury securities despite a 2 - percentage - point increase in the federal funds rate. this is clearly without recent precedent. the yield on ten - year treasury notes, currently at about 4 percent, is 80 basis points less than its level of a year ago. moreover, even after the recent backup in credit risk spreads, yields for both investment - grade and less - than - investment - grade corporate bonds have declined even more than treasuries over the same period. the unusual behavior of long - term interest rates first became apparent almost a year ago. in may and june of last year, market participants were behaving as expected. with a firming of monetary policy by the federal reserve widely expected, they built large short positions in long - term debt instruments in anticipation of the increase in bond yields that has been historically associated with a rising federal funds rate. but by summer, pressures emerged in the marketplace that drove long - term rates back down. in march of this year, market participants once again bid up long - term rates, but as occurred last year, forces came into play to make those increases short lived. there remains considerable conjecture among analysts as to the nature of those market forces. that said, there can be little doubt that exceptionally low interest rates on ten - year treasury notes, and hence on home mortgages, have been a major factor in the recent surge of homebuilding and home turnover, and especially in the steep climb in home prices. although a “ bubble ” in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels. the housing market in the united states is quite heterogeneous, and it does not have the capacity to move excesses easily from one area to another. instead, we have a collection of