to long term. turning to wage developments, it is notable that government recurrent expenditure included a 3 percent salary increase for the public service, which, as a matter of practice, guided parastatal and private sector wage adjustments. thus, in 2016, wages increased, generally, by 5. 2 percent, therefore, with a modest impact on demand and inflation. on credit developments, growth in commercial bank credit fell from 7. 1 percent in 2015 to 6. 2 percent in 2016 in the context of subdued economic activity and restrained growth in personal incomes, which influenced both the demand and supply side. the bank also recognises challenges in the transmission of the prevailing policy rates to lower lending interest rates. the challenges relate partly to structural issues, such as uncertainty about sustainability of funding sources and associated balance sheet restructuring as well as tighter lending criteria by banks. against this background, the annual expansion in lending to households fell from 12. 8 percent to 7. 6 percent and included lower growth for personal loans and mortgages. in contrast, growth in business credit increased to 4. 2 percent, from a contraction of 0. 3 percent in 2015, but with varying performance across sectors. overall, the moderate increase in bank lending supports economic activity and it is broadly consistent with growth of nominal gdp. monetary policy implementation in 2016 honourable minister and esteemed guests : monetary policy was predominantly accommodative in advanced economies, with low levels of interest rates ; in some instances, interest rates are negative, while liquidity support to the financial sector was maintained. in this regard, notable developments include the reduction of interest rates in the united kingdom aimed at mitigating the adverse impact of the decision to leave the european union ( brexit ) and the second increase in interest rates in the united states of america since 2008, given progress in attaining full employment and price stability. for emerging market economies, the direction of policy changes was mixed, invariably reflecting differing macroeconomic circumstances. closer to home, the south african reserve bank increased the policy rate by 75 basis points to 7 percent during 2016 in order to anchor inflation expectations around the country ’ s target range of 3 – 6 percent. domestic monetary policy implementation for its part, the bank continues to conduct monetary policy through a forecast - based policy framework that informs the appropriate response to deviations of inflation from the desired objective range. the analysis also involves assessment of divergence of actual output ( gdp ) from potential output ( technically known as the “ output gap ” ), which

now mention some of the important elements of the evolution of the monetary policy framework, over the past two decades. first, is the clarity and definition of the inflation objective performance and horizon. identification second, of the development medium - term of supporting infrastructure and internal capacity to operate the forecasting and policy analysis system that guides monetary policy decisions. third, the bank formalised the institutional arrangements, in the form of a monetary policy committee whose regular meetings are followed by a press release, as well as publication of the annual monetary policy statement and mid - term review. in addition, changes in the exchange rate policy framework also helped enhance the effectiveness of monetary policy. in particular, the adoption of the crawling band exchange rate framework since 2005 and, later, public disclosure of the weights of the constituent currencies in the pula basket as well as the rate of crawl, has supported the bank ’ s focus on the inflation objective. this transparency in the management of the exchange rate helps to anchor policy credibility and predictability and, therefore, informs expectations and economic decisions. as the bank continues to focus on refining and making improvements, it has been the intention to enhance transparency and interaction with the market, as circumstances would be propitious, with a view to further buttressing policy transmission and credibility. in this regard, the bank will, henceforth, pre3 announce the dates for the monetary policy committee ( mpc ) meetings for the ensuing half year ; and, convene a media briefing following each meeting of the mpc to announce the policy decision. i hasten to add, distinguished guests, that these initiatives are premised on availability, and should be a catalyst for development, of an appropriate market infrastructure and expertise, such as informed and robust market analysis and strong financial journalism, as well as organised debt and credit markets. honourable minister, ladies and gentlemen, my message today also addresses three other areas. first, i will briefly examine global trends that have influenced inflation in botswana ; second, i will highlight the conduct of monetary policy, both internationally and here at home ; and, finally, i will provide the medium - term inflation outlook and, consequently, the likely policy stance. external economic developments looking back, it is estimated that global output growth was 3. 1 percent in 2016, compared to 3. 2 percent in 2015, and weaker than the projection of 3. 4 percent early in the year. the lower growth rate resulted from subdued economic activity in both advanced and emerging market economies, while