and activity likely to persist through the year. coping at the business and household level in light of this weakness and uncertainty about what the year holds, new zealand businesses and households are understandably behaving cautiously. they are reducing expenses, increasing savings and otherwise shoring up balance sheets. the availability of governmentguaranteed savings vehicles at relatively attractive interest rates, certainly compared to those elsewhere, is probably encouraging this behaviour. however, the shutters on spending have not come down completely. overall, we are seeing a broadly rational response to the difficulties we face. the massive financial downdrafts hitting the economy this year will force a mix of pricing and wage - setting restraint, moderated employment plans, and higher hurdles for new investment. within this, the precise coping strategies taken will vary across the economy ’ s sectors, depending on the particular shape of domestic and external forces playing out in each. none of this will be easy. business and labour will be challenged by the need to be realistic about the painful adjustment ahead, without undermining our collective ability to respond to the recovery in demand when it arrives. the more that the domestically - generated part of the economy ’ s cost structure can be kept under control, the less pressure there will be for the burden to show up in reduced employment and output. banks also will need to play their part. lending policies have turned conservative and cautious, which is normal banking behaviour in risky times. however, just as the banks have done very well in new zealand in good times, so they have a key role to play in tough times. they are a critical part of the mechanism by which monetary policy stimulus gets through to the wider economy. while continuing to manage their risk prudently, the banks ’ challenge will be to continue lending on sound business proposals, to keep working to develop stable sources of funding from depositors and the financial markets, and to keep passing on to lending rates the cuts in wholesale interest rates. what if things get worse? what if things get markedly worse? for the reserve bank at least, as for other new zealand authorities and our colleagues abroad, the first priority for the coming year will be to remain ready to respond. further adverse news is likely and further remedial interventions may well be necessary. lest there be any doubt, the tool box is by no means empty. we have done a lot already and it will take some time for these actions to have their full effects, but we are entering the year well - positioned

of medium - and long - term government securities. we have already made amendments to the bank of mauritius act 2004 and to regulations made by the financial services commission ( fsc ), in respect of fees. the main item yet to be agreed on is the exit facility for banks engaging in this line of business. we are still discussing a draft memorandum of understanding for trading of the securities on the stock exchange with the fsc, and the exit mechanism with mofed. click here to return to main document 34. 1 debt management. in 2013, the bank issued treasury bills and treasury notes for nominal amounts of rs33. 3 billion and rs12. 3 billion, respectively. the bank also issued 5 - year, 10 - year and 15 - year government of mauritius bonds as well as 15 - year inflationindexed government of mauritius bonds for total nominal amounts of rs6. 9 billion, rs3. 3 billion, rs2. 6 billion and rs1. 0 billion, respectively. overall, in 2013 the bank issued a net amount of rs9. 4 billion as government securities. click here to return to main document 38. 1 forex intervention. during 2013, banks and foreign exchange dealers made total purchases in foreign exchange of the equivalent of usd4. 1 billion, compared with usd3. 9 billion in 2012, an increase of nearly 5 per cent. total sales in 2013 in foreign exchange amounted to usd4. 0 billion, compared with usd3. 9 billion in 2012, an increase of just over 2 per cent. the total turnover of foreign exchange transactions in 2013 clearly shows that there was no liquidity constraint in this market and the level of business activity in foreign currency remained relatively stable compared with the previous year. click here to return to main document 39. 1 banking sector performance. the banking sector continued to grow in 2013, with assets reaching over rs1 trillion. growth in banks ’ assets was mainly driven by segment a business. banks remained profitable and adequately capitalised with a comfortable buffer over the minimum regulatory capital adequacy ratio of 10 per cent. one of the key strengths of our banks is the quality of capital, with tier 1 capital representing a considerable proportion of the capital base. at end - december 2013, the capital adequacy ratio stood at 16. 4 per cent. 39. 2 the quality of the credit portfolios of banks remained strong, despite a slight increase in the ratio of non - performing loans to gross loans. at the end