from 11 per cent to 8. 5 per cent ; it will be further reduced as a result of yesterday ’ s cut. however, borrowers with default risk pay a premium over the prime lending rates of banks. the higher the default risk the higher is the premium. monetary policy has its limits ; it cannot influence the premium in either direction. in this policy scenario savers face the vicissitudes of interest rate not only in mauritius but the world over. our household sector has traditionally placed its savings with banks. risk averse investors, particularly those depending on their pensions for a living, have not had the benefit of riskfree investment avenues. in december 1998 the bank of mauritius started with the sale of treasury bills over - the - counter to individuals. over rs4 billion from more than 11, 000 individual investors were soaked up by the bank of mauritius. evidently the market for government debt instruments has a growth potential in mauritius. the sale of bills was subsequently suspended in view of our decision to develop a secondary market for government debt instruments. there have been many requests from the public to the bank of mauritius for the regular sales of treasury bills over - the - counter. though helpful as a rudimentary method of conducting open market operations in a less developed market, the sale of treasury bills over - the - counter by the bank of mauritius is not the way forward. we have decided that treasury bills and over time other government debt instruments be traded on the stock exchange of mauritius. our stock exchange has good operating characteristics for trading in government papers. we expect the market to eventually develop into a bond market with an efficient system of good price discovery. the bank of mauritius, the stock exchange of mauritius and stockbrokers have made united efforts to start trading sometime in the next few weeks. the stock exchange of mauritius and stockbrokers will come up with more details this december. the bank of mauritius has a keen interest in the development of the market for government debt instruments. such a market would provide the bank with a good medium for the conduct of its monetary policy. ladies and gentlemen, my address tonight is based on a decision to make the monetary policy stance of the bank of mauritius increasingly more transparent. it is an adopted practice among central banks in most countries to move for transparency in the area of monetary policy making. i for one do really believe in it and will move further in this direction. before concluding may i say that the bank of mauritius will live up to the challenges of monetary policy in

- dependent island. ( more on this issue ) reserves management given “ negative carry, ” we did not seek to accumulate reserves. we managed to keep them at a comfortable level throughout the year. in december 2011, the gross external reserves of the bank exceeded rs80 billion while net international reserves amounted to almost rs110 billion, representing around 37 weeks of imports. our gold holdings amounted to around rs5. 7 billion as at end - december 2011, or around 7 per cent of gross external reserves. our reserves are at a comfortable level when measured against the two traditional metrics of import cover and short - term debt cover. we actively pursued our diversification strategy into higher - yielding instruments and comparatively stable currencies. we thus invested in currencies such as the norwegian krone and the swedish krone. we intend to increase the share of our investment in bis central bankers ’ speeches fixed - income securities. amendments have been brought to the bank of mauritius act to support these moves. the bank has negotiated with the reserve bank of india to invest in indian government bonds and is currently negotiating with the people ’ s bank of china to invest in chinese government bonds. the diversification strategy adopted by the bank, together with enhanced operational efficiency, were behind the improved financial performance of the bank which realized a net profit of rs258 million for the fy2010 / 11, compared to rs72 million for the corresponding period last year, in spite of the continuation of the low - yield environment for currency placements. we have made some progress with the idea of setting up the sovereign wealth fund which i had discussed quite lengthily in my previous letter to stakeholders. i have had follow - up discussions with the imf and other central banks which have gone down this road. together with my head of financial markets operations, i participated in the first africa sovereign funds roundtable in morocco, which brought together central banks, pension / social security funds, sovereign wealth funds and finance ministries across the african continent. the roundtable provided participants with guidance on ways to address strategic, governance and investment management challenges. debt management we scored some success in our attempt to improve the domestic debt profile of central government which we lengthened. in october 2011, we introduced 273 - day treasury bills to widen the maturity spectrum of available instruments and smoothe the yield curve – i will take up the issue of the yield curve in the next paragraph. we built benchmark bonds by re - opening the issues of longer - term