##s international competitiveness of domestic producers by stabilising the trade - weighted exchange rate ( also known as the real effective exchange rate ), in conjunction with the crawling of the nominal trade - weighted exchange rate ( also referred to as the nominal effective exchange rate ). it is gratifying, therefore, that the bank ’ s biannual business expectations surveys continue to indicate broad - based support for the inflation objective and the exchange rate regime. in pursuit of price stability, the bank uses interest rates and open market operations to influence demand and supply conditions in the economy and, ultimately, the rate of price increases. the timing and size of any interest rate change is derived from the monetary policy framework, which incorporates an assessment of prospective domestic and external economic developments that influence price movements. on the basis of the framework, the bank forecasts inflation in the medium - term ; it is this inflation forecast which, in turn, informs the monetary policy response. in this case, monetary policy is adjusted to address a sustained deviation of the medium - term inflation forecast from the medium - term inflation objective range. even so, a change is undertaken when it is considered that the underlying inflationary factors can be influenced by monetary policy. it is the monetary policy committee of the bank which considers these factors and decides on the direction of monetary policy. as you will have observed, the outcome of the committee ’ s deliberations is disseminated through the media to stakeholders, in order to help anchor inflation expectations and buttress policy credibility, which is critical in achieving long - term price stability. let me now highlight the economic and financial developments of 2011, as background for the policy posture of the period. from a global standpoint, there was upward pressure on inflation in the first half of 2011, particularly in emerging market economies, due to an increase in commodity prices, especially for oil and food products. the increase in the price of oil was worsened by political and social conflict in the middle east and north africa. however, inflation slowed down as the year came to an end, due to a slack in global demand and economic activity. the trade - weighted average inflation for botswana ’ s trading partner countries increased, from 2. 8 percent in 2010 to 4. 8 percent at the end of 2011. the sdr countries, which are the united kingdom, united states of america, japan and euro area, experienced a significant increase in prices ; the average inflation rose from 1. 8 percent in 2010 to 2. 9 percent

business to ensure that the payments system, a part of which is the effective management of the national currency, is efficient and secure. capacity in this area is continuously enhanced to respond to broader issues of financial stability, which have become important in the current environment of heightened uncertainty over the health of the global financial system. the bank also provides both banking services and the lender of last resort facility to commercial banks. similarly, the bank is banker to the government, which it also serves as economic and financial advisor. furthermore, much of the country ’ s financial assets is managed by the bank in the form of foreign exchange reserves. the reserves are invested in international financial and capital markets which, as we speak, are in turmoil due, largely, to the sovereign debt crisis in the euro area. this turbulence is compounded by the consequent downgrading of sovereign credit ratings of a number of industrial countries which, hitherto, enjoyed high investment grade ratings. despite these developments, i wish to reassure you and other stakeholders that the management of reserves will continue to be guided by the bank ’ s well established investment policies and guidelines, as periodically reviewed. in this respect, the level of reserves as of the end of january 2012 was approximately 60 billion pula ( or 8 billion usd ), bis central bankers ’ speeches which is equivalent to 18 months of imports, an improvement over last year ’ s 15 months import cover. speaking of sovereign credit ratings, botswana ’ s ratings, as awarded by the two main international sovereign credit rating agencies, moody ’ s investors service and standard & poor ’ s, continue to be of the investment grade “ a ”, and compare favourably with those of other countries in its league. i hasten to add that, despite this good standing, botswana ’ s credit ratings remain vulnerable to the vagaries of international financial and capital markets and other global economic factors over which the country has little or no control. on our part, however, it is very important to return to the erstwhile fiscal rectitude and sustainability, enhance productivity and expand the economic base, in order to withstand external shocks. honoured guests : i now turn to the subject of monetary policy, and wish to suggest that the importance of effectively formulating and implementing monetary policy is well known and self - evident. it goes without saying that a low, predictable and sustainable level of inflation contributes to the attainment of the broader national objective of a stable and sustained economic growth. price stability also foster