conversely, the bank would reduce interest rates in the event of sustained low or rapidly falling inflation. in particular, the bank ’ s reactions are informed by the performance of the economy in relation to potential output. a sustained level of economic performance above a production trend or potential tends to be inflationary and could suggest the need to raise interest rates to dampen inflationary pressures, while economic performance below output trend could require a reduction of interest rates to stimulate economic activity. however, this policy response is not mechanical ; it takes account of expert judgement and supplementary analysis in order to accommodate other factors that may not be fully incorporated in the forecasting model. at the regular meetings of the monetary policy committee, economic developments and key indicators of the inflation outlook are monitored and reviewed, so that a timely policy response can be taken, if necessary. after each committee meeting, the decisions, the reasons for those decisions and the inflation outlook are disseminated to the public through press releases. this approach helps to influence inflation expectations and contributes towards fostering policy credibility, which is critical in achieving long - term price stability. distinguished ladies & gentlemen : it will come as no surprise to you that this year ’ s monetary policy statement is launched in a substantially different global and domestic macroeconomic environment than was the case last year. twelve months ago, i had little good news to report. we had foreseen a difficult 2009 due to the unfolding global economic downturn. botswana ’ s diamond mines had temporarily halted production as the full force of the global recession descended on the country. a substantial portion of my remarks at the time was devoted to assessing the impact of the crisis on the domestic economy. we saw no end to the economic recession, as forecasts for global growth were repeatedly revised downwards. as the year progressed, diamond exports had slowed to a trickle, and impacted negatively on government revenue, the balance of payments and the foreign exchange reserves. in the circumstances, work on the tenth national development plan had to be postponed so that the budget could be re - worked to ensure the maintenance of long - term fiscal sustainability. that was then. as we meet today, the picture is considerably more positive, despite uncertainties and challenges posed by the fragile economic recovery in many parts of the world, particularly in portugal, ireland, italy, greece and spain ( the so called piigs ). the international monetary fund has forecast global output to expand by 3. 9 percent this year. this performance reflects the resilience of key

close scrutiny. i wish to take this opportunity, therefore, to reassure the nation that, despite the turmoil in major financial and capital markets, the bank ’ s prudent investment policy and strategy have served the country well. the purchasing power of the reserves has been maintained and, despite very low export receipts and the high import bill, the reserves remain relatively sizeable at approximately usd9 billion ( p59 billion ), which is equivalent to 20 months of imports of goods and services. the bank is also the banker to the government and commercial banks, for which it serves as the lender of last resort. in addition, as economic and financial advisor to the government, the bank worked very closely with the authorities throughout the year in addressing the challenging external and domestic macroeconomic environment. honoured guests : i now return to the main agenda of this evening, which is the anticipated direction of the bank ’ s monetary policy stance during 2010. as i mentioned earlier, the bank ’ s monetary policy objective is to achieve price stability, as defined by a sustainable, low and predictable level of inflation. this objective is set as a medium - term inflation objective range of 3 – 6 percent. in order to attain price stability within this parameter, the bank uses interest rates and open market operations to affect demand and supply conditions in the economy and ultimately the rate of price changes. you will know that low inflation contributes towards the broader national objective of sustainable economic growth by making saving attractive and investment return predictable, while fostering international competitiveness of domestic producers. in addition, maintaining the purchasing power of money by controlling inflation contributes to the welfare of all economic agents, particularly households. apart from interest rates and credit availability, domestic demand and economic activity are also influenced by other factors, especially fiscal policy as well as trade and exchange rate developments. excessive domestic demand in relation to available goods and services contributes to inflationary pressures ; so too do foreign inflation, changes in administered prices ( such as government levies and utility tariffs ) and public expectations about the future level and direction of inflation. in its application, however, monetary policy responds to a sustained deviation of the inflation forecast from the objective range in the medium - term. the bank ’ s responses are based on an assessment of the factors that impact on inflation, including public expectations which could, in turn, be influenced by monetary policy. for example, interest rates would be increased to pre - empt a potential rise in inflation and the consequent erosion of incomes and financial savings.