to more market oriented policy tools. in respect of the latter open market operations ( omo ) were introduced almost five years ago and are now undertaken routinely. in respect of the direct controls the bank has begun to rationalise reserve ratios in the commercial banking system. changes will take place only when monetary conditions permit. you may be aware that commercial banks earn no income on cash reserves and this represents a cost to banks and must be recovered in the spread between loan and deposit rates. a reduction in the reserve requirement will lead to either lower deposit rates or lower loan rates or some movement in both that will lead to a narrower spread. thus the reduction in the reserve requirement from 21 per cent to 18 per cent – which is effective from the reserve week beginning today - will lead to a fall of about $ 376 million in the amount that commercial banks need to hold in cash at the central bank. to ensure that there is no impact on current liquidity conditions these funds have been re absorbed with a simultaneous issue of government securities to the commercial banks. the central bank expects that the reduction in the cash reserve ratio initially will impact the loan rates in the banking system so that borrowing costs will be lower. capital market developments over the long period of expansion the domestic capital market has been able to meet the needs of domestic firms as well as the public sector when the need arose. over the last two years the domestic capital market has witnessed what some have termed the internationalization of the market as trinidad and tobago has emerged as a regional financial centre. several regional governments and quasi - public sector entities have raised us dollar financing on the domestic market. indeed between 1999 and 2000 us $ 195 million was raised by regional governments ( barbados, belize, st. lucia ) on the domestic capital market while tt $ 6, 640 million was also issued in bond financing over the same period to local companies and para statal companies ; all this points to the growing ability of the domestic capital market to supply long term funding. these developments augur well for our capital market but as the volume of transactions grow there must also be some additional institutional changes. as more governments and regional corporations enter this market, the absence of an independent benchmark measure of risk, the pricing of these securities, the absence of good credit analyses – all point the need for the establishment of a regional credit rating agency. perhaps the time is right and it may well be a good idea for the private sector interests to explore the feasibility of the establishment of such an institution. implications

all the market participants. if the secondary market is to work : • institutional investors will need to look for opportunities for profitable trading and not simply accept the traditional “ buy and hold ” culture. • banks and other financial institutions, who are the main holders of government paper, will need to see the profit - making opportunities in promoting the sale of government securities to end - investors. • the central bank has the responsibility for fostering credibility in the auction process, and maintaining efficient clearing and settlement systems. currently only the securities issued in auctions since 2004, are currently included in the depository managed by the central bank and listed on the stock exchange. the bank needs to be appointed registrar for government bonds issued before 2004 and is working with trustees to effect this. when this exercise is completed, bondholders will be asked to deposit their bond certificates with the bank in exchange for an electronic deposit record of their bond holdings. this process will increase the volume of bonds available for trading on the stock exchange. • government, for its part, must guarantee a regular and predictable supply of primary issuance so that institutions could be assured of replenishing their positions after selling securities from their portfolios. one way of ensuring supply, is to bring public entities into the auction mechanism instead of relying on bank financing or the underwriting process. • the sec has the mandate for preparing and enforcing the rules and regulations pertaining to the secondary market. these include regulation of the market intermediaries, market surveillance and transparency and reporting requirements and market conduct regulation ; the latter includes trading rules and arrangements aimed at preventing improper trading practices such as market manipulation and insider trading practices. so the launch today is just the beginning. we all have our work cut out for us and we all need to work closely together, if we are to create a liquid and vibrant secondary market for government securities. i told you earlier that most developing countries shun this step because it involves the creation of new institutions as well as important behavioural changes. but, if we want to have a developed capital market ; and if we want to be an international financial center we need to make a quantum leap from occasional primary issuance and a few isolated “ over the counter ” trades to a formal secondary market that gains credibility among local as well as international investors. as this is the carnival season, it is perhaps fitting to take stalin ’ s advice “ we can make it if we try ”.