Thus, annual CPI variation went from its 9.9 percent peak of October 2008 to 4.5 percent in April. Most measures of inflation expectations show a decline in recent months, particularly for the short term (Figure 9). The baseline scenario of this Report assumes that year-on-year inflation will continue on a downward path in the coming months with large swings between the end of this year and the  4  BIS Review 65/2009  beginning of 2010. This, because of the changes in the basis of comparison that include high figures from May through October 2008 and negative ones that accumulated from last November to February (Figure 10). Therefore, in the baseline scenario, annual CPI inflation will be negative from the end of the third quarter to the beginning of the fourth, to close the year 2009 at 0.6 percent. Then it should pick up gradually, to reach 3 percent at the end of the policy horizon, this time the second quarter of 2011. The rate of annual variation of core indicators has also dropped, a trend that will prevail until the first half of 2010, when they will start growing steadily to also hit 3 percent by the end of the policy horizon (Table 3). The path projected for inflation rests on a number of assumptions. On one hand, import costs will not be a source of additional inflationary pressures. Commodity prices will post small increases in the next two years, in line with the slow recovery foreseen for the world economy.
The substantial increase in new equity investments, despite the effects of the global financial and economic crisis, demonstrates how favourable the Zambian investment climate is in attracting foreign investment. BIS central bankers’ speeches  1  Distinguished Guests, It is also encouraging to note that the Government’s diversification efforts are yielding favourable results. The survey findings show that the concentration of foreign direct investment in the mining sector is reducing as evidenced by the substantial FDI inflows to other sectors such as manufacturing, wholesale and retail trade, and the tourism sector in 2009. Evidence from South East Asia and the recent global financial and economic crises show that high volatility in foreign private capital if not properly monitored and managed, can induce financial and macro-economic instability. In light of this the results of the Foreign Private Investment and Investor Perception Survey are important and intended to assist the Government to effectively monitor and manage these flows. In addition, better information on investor perceptions will assist Government in designing policies and programmes that will help enhance Zambia’s favourable investment climate. Further, the results of the survey should prove useful to the private sector and other stakeholders as they highlight some concerns which Government should address as well as the overall business profitability and performance prospects of various sectors. The importance of timely and reliable information on capital flows in the design of appropriate policy responses by Government and thus enhancing macroeconomic stability can hardly be overemphasised.