, that is, the sale of treasury bills over - the - counter to individuals re - established a number of equations in our system. this strategy remedied to some extent the inadequacies of our money market. in 1999, our operational framework was again reviewed. this framework encapsulated repurchase operations between the bank of mauritius and commercial banks along with the concept of a key interest rate, the lombard rate for signalling the interest rate policy decisions. admittedly, the connection between the lombard rate and the money market is not sufficiently strong. this is not because the concept of the key rate itself is wrong but because our money market has not attained the desired level of development and sophistication. the link between the lombard rate and the money market has to be robust for any shift in the interest rate policy stance to be instantly transmitted. however, as you may have observed, changes in the lombard rate have been having the intended impact on our interest rate structure. in time to come our operational framework for the conduct of monetary policy will be refined with the progress in the development of our money market. depending on the pace of development of our money market in 2005, the lombard rate will be replaced by a repurchase rate, commonly referred to as the repo rate. as an aside, let me say that monetary policy making has never been and can never be a purely mechanical process ; it is basically an interpretative and therefore a judgemental process requiring a battery of information collected from every available source, including the on - site inspection of banks carried out by our banking supervision department. the judgemental process is what makes monetary policy decision - making difficult. i need not overstate that what is judgemental is susceptible to mis - judgements. the bank, however, does its best to avoid erring on the wrong side. it sounds simple. but it isn ’ t. central bankers endeavour to have a clear view of its monetary policy transmission mechanism. our policy decisions involve a good understanding of the roles of short - term interest rates, exchange rate, and money and credit in the economy. the bank heavily counts on dependable inflation forecasts. a fan chart for probabilistic outcomes on the inflation front, duly supported by a highly reliable inflation forecasting model plays a decisive role in our policy - making process. this is a key element since our monetary policy framework is necessarily forward - looking. academics and central bankers agree that there is no such thing like an “ ideal

of different pressure groups, it is best to consistently pursue policies with a precisely defined objective that best serve society as a whole in the medium and long - term. there is a general tendency to believe that the bank of mauritius is not concerned with growth and employment. this is a mis - perception. the bank is not insensitive to the unemployed. indeed, the bank does take into account these considerations in policy - making, not with a short term but with a medium and long - term view. monetary policy does not directly promote growth and help create employment ; it does it indirectly through the achievement of sustained price stability. durable growth can only be achieved, inter alia, within a framework of monetary stability. this is what central banks can be reasonably expected to deliver. in the bank of mauritius act 2004 this is what is expected of the bank. there are however several underlying and fundamentally important assumptions for monetary policy to succeed. rather than enumerating the assumptions, let me set a few questions and leave them to you for reflections. are there serious imperfections in the determination of prices of goods and services in the domestic market? why prices of goods and services do not positively respond in both directions to movements in the exchange rates of the rupee? how rational are consumers in making decisions? is the labour market flexible? how many traders, producers, exporters and importers have reliable annual balance sheets on the basis of which banks make decisions to lend? have our financial markets attained a level of development that facilitates transmission of monetary policy impulses readily? years ago we had less national savings and more investment. today we have are flushed with funds but investment is sluggish despite a panoply of investment incentives. indeed, national savings exceed investment by far. haven ’ t we overstretched the “ welfare state ” for too long a time to a point that has suppressed entrepreneurial instinct, blunted creativity, inventiveness, and undermined work effort? hasn ’ t the “ welfare state ” been overstretched to a point that has given rise to a society of free riders? the more free riders there are in a “ welfare state ” the heavier is the burden on government finance and the more difficult is the task of monetary policy in achieving the desired objective. the point i want to make here is that monetary policy does not operate in a vacuum, independent of a host of other critical factors, and it alone cannot perform miracles. deprived of a number of allied factors, the achievement