the last sector i will mention is mining. there are currently twelve mineral exploration companies active in solomon islands. the sector, although currently small, is becoming increasingly active. the main short term potential for the economy lies in gold production. according to industry predictions, a major gold mining project could be in operation on guadalcanal by march 2010. in the longer term nickel may prove an important export for solomon islands. the country possesses major proven nickel reserves. the majority of mining projects however remain a long way from production and continued peace, stability and patience is vital to maintain investor's confidence in such projects. monetary and financial developments let me turn to recent monetary and financial developments. it must be remembered that the impact of the global economic crisis on solomon islands has not been all bad. whilst falling international commodity prices have had a damaging affect on our export receipts they have reduced the cost of imports. this has been a major contributing factor in the easing of inflation pressures. falling world prices for oil and food in particular have been instrumental in reducing the inflation rate from 23. 5 % in september 2008 to 5. 9 % in july 2009. the lowering of inflation, to a more sustainable level, is a major policy goal for the central bank, as set out in its 2009 monetary policy stance. whilst international price falls have been one major contributor to this reduction in inflation, central bank intervention has also been important in increasing price stability. the cbsi intervened to reduce the level of excess liquidity in the financial system and so slow down lending, which was fueling inflation. in order to do this the bank redefined the liquid asset ratio, which acted as a de facto raise in the required level of reserve holdings by the commercial banks. we also issued central bank backed securities and instituted a long run deposit facility to absorb liquidity from the system. the bank anticipates the level of inflation to remain well within target during the remainder of the year. we will however continue to remain vigilant. an unanticipated upsurge in fuel or rice prices could increase upward pressure on the inflation rate. other potential threats to price stability include public sector wage inflation and potential fiscal dominance. our second stated policy objective for 2009 was to protect and if possible increase the level of foreign reserves. at the beginning of the year the level of import cover provided by gross reserves had fallen below the banks minimum desired bench - mark of 3 months. through a combination of tight monetary policy, foreign currency inflow

##pating and, in some cases, reversing seems likely to play out in durables more generally. over the 25 years preceding the pandemic, durables prices actually declined, with inflation averaging negative 1. 9 percent per year ( figure 5 ). 9 as supply problems have begun to resolve, inflation in durable goods other than autos has now slowed and may be starting to fall. it seems unlikely that durables inflation will continue to contribute importantly over time to overall inflation. we will be looking for evidence that supports or undercuts that expectation. 3. wages we also assess whether wage increases are consistent with 2 percent inflation over time. wage increases are essential to support a rising standard of living and are generally, of course, a welcome development. but if wage increases were to move materially and persistently above the levels of productivity gains and inflation, businesses would likely pass those increases on to customers, a process that could become the sort of “ wage – price spiral ” seen at times in the past. 10 today we see little evidence of wage increases that might threaten excessive inflation ( figure 6 ). broad - based measures of wages that adjust for compositional changes in the labor force, such as the employment declines in used car prices would begin holding down 12 - month inflation once most of the earlier price increases have fallen out of the 12 - month window. the lower inflation in durable goods is probably due to a number factors, including faster productivity growth in durable goods than in services and globalization. if wages rise in line with inflation and labor productivity growth, then real unit labor costs ( or the labor cost of producing one unit of output ) to businesses are constant. wages may grow slower or faster than inflation plus productivity growth for extended periods because of changing structural factors without being reflected in inflation. ultimately, however, persistently rising real unit labor costs will put upward pressure on prices. - 7cost index and the atlanta wage growth tracker, show wages moving up at a pace that appears consistent with our longer - term inflation objective. we will continue to monitor this carefully. 4. longer - term inflation expectations policymakers and analysts generally believe that, as long as longer - term inflation expectations remain anchored, policy can and should look through temporary swings in inflation. our monetary policy framework emphasizes that anchoring longer - term expectations at 2 percent is important for both maximum employment and price stability. we carefully monitor a wide range of indicators of longer - term inflation expectations. these measures today are at levels