market. central banks and governments share the responsibility to facilitate and promote the development of local bond markets, remove market friction and unnecessary restrictions, and provide an environment that is conducive to both supply and demand, that is to both the issuers and investors. bond market development has been targeted by the central bank over the past years through various initiatives. this included the establishment of an appropriate market infrastructure that facilitates costeffective and secure trading, and a transparent price discovery process. with regard to secondary market development, you all know that we set a secondary market cell within the bank in 1994. we established a primary dealer system in 2002. treasury bills have been listed on the stock exchange of mauritius since 2003. we have re - introduced sales of treasury bills and treasury notes at the counters of the bank of mauritius last july. the deepening of local currency bond market across a range of maturities will encourage increased participation by institutional investors. we have started issuing medium – to long – term bonds on a more regular basis to develop a benchmark yield curve for government securities across the whole spectrum. this will facilitate the development of a corporate bond market. in 2007, the european investment bank, with the state bank of mauritius and west lb from south africa as lead managers issued synthetic mauritian rupee debt in the international market. we are now considering a proposal from the world bank for the government to allow them to issue mauritian rupee denominated or linked bonds in the end, however, there is only so much that the authorities can – or should – do. whilst these initiatives add up to the necessary conditions for market development, they are unlikely to prove sufficient on their own. however good the infrastructure may be, it is for the players themselves, that is the issuers, investors and the financial intermediaries to eventually determine the shape and size of the market. it is also of paramount importance that market players adopt a participative approach for the development of the money market, as the existence of trading limits are impeding the development of these markets. allow me now to dwell a little on the challenges that a small country like mauritius is currently facing in the conduct of monetary policy. today, the bank of mauritius finds itself confronted with the important challenge of reducing the rate of inflation, which stood at 9. 0 percent at the end of february 2008, and preserving the competitiveness of the export - oriented sectors. and we must meet this challenge against a backdrop of unprecedented capital

extended benefits expire. 16 moreover, at least some of the recent outward shift in the beveridge curve appears to reflect cyclical rather than structural influences. for example, vacancies typically adjust more quickly than unemployment to changes in labor demand, causing counterclockwise movements in vacancy - unemployment space that can look like shifts in the beveridge curve. indeed, as is evident from the figure, such counterclockwise movements have occurred in most previous recessions. finally, it is worth emphasizing that most of the co - movement between unemployment and vacancies in recent years does not appear especially unusual. in particular, low vacancies and elevated layoffs – likely driven by weak labor demand – can account for much of the increase in unemployment that has occurred since mid - 2008. 17 this observation is in accord with the recent behavior of inflation, which, as noted above, has trended down over the past three years, consistent with a decline in rates of resource utilization. likewise, nominal wage growth has fallen noticeably over the past several years and remains quite low. in sum, while deficient labor demand may not be the only factor boosting unemployment currently, and while disentangling the various influences on unemployment is not straightforward, weak labor demand appears to be the predominant factor keeping the unemployment rate elevated. this weakness, in turn, implies that current resource utilization is likely well below normal levels, mitigating the risk that the policy stimulus from our asset purchase program will lead to excessive inflation. inflation and bank reserves. a second reason that some observers worry that the fed ’ s asset purchase programs could raise inflation is that these programs have increased the quantity of bank reserves far above pre - crisis levels. i strongly agree with one aspect of this argument – the notion that an accommodative monetary policy left in place too long can cause inflation to rise to undesirable levels. this notion would be true regardless of the level of bank reserves and pertains as well in situations in which monetary policy is unconstrained by the zero bound on interest rates. indeed, it is one reason why the committee stated that it will review its asset purchase program regularly in light of incoming information and adjust the program as needed to meet its objectives. we recognize that the fomc must withdraw monetary stimulus once the recovery has taken hold and the economy is improving at a healthy pace. importantly, the committee remains unwaveringly committed to price stability see barnichon and