I could also see signs of stabilisation in important forward-looking indicators, particularly orders in the purchasing managers’ index. However, the picture is not clear-cut and never is when economic activity is in the balance. But, as I mentioned at the meeting, if the signs of stabilisation become clearer they may affect the mood more permanently, not least on the stock market. This can in its turn have a positive effect on households’ undermined wealth and help increase consumption. Further ahead it may be possible to reinforce a positive cycle and for investment to pick up. I also mentioned that a large part of the economic policy stimulation, particularly investments in the US infrastructure, would have its greatest effect in 2010. Having said this, I would like to point out, as I did in the discussion at our most recent monetary policy meeting, that it might very well be the case that the signs of stabilisation I mentioned then were delusive. And it is definitely not the case that I fail to see the  4  BIS Review 73/2009  seriousness of the economic downturn we are in. Nevertheless, the recovery could as I have said be quicker or slower than expected. Inflation outlook may change quickly Falling resource utilisation and inflationary pressures have meant that we could conduct a strong, expansionary monetary policy to alleviate the effects of the economic downturn and at the same time ensure that inflation does not undershoot the target very far.
This outturn was attributed to the decline in both annual food and non-food inflation. BIS Review 57/2010  1  In the external sector, Zambia’s external position showed remarkable improvement as reflected in the build-up of gross international reserves to 5.1 months of import cover in 2009 from 2.1 months of import cover in 2008. Zambia’s overall balance of payment position is expected to remain favourable in 2010 due to the rebound of copper prices on the international market as well as the expected increase in copper production as some mines increase production to full capacity and the resumption of production at some mines. The rebound in the international price of copper in the second half of 2009 and the return of foreign portfolio flows resulted in an appreciation of the exchange rate of the Kwacha by 4% at the end of the year. However, fiscal performance in 2009 was weak, mainly due to the global economic crisis, which reduced domestic revenues. Despite this, Government remained within the programmed domestic financing for the year. Ladies and Gentlemen, the financial sector has remained resilient despite the adverse effects of the recent global financial crisis. Currently, the Zambian financial sector is characterised by high liquidity levels, reflecting tighter lending standards in the wake of the lessons from the global financial crisis leading to marked decline in private sector lending. As a result, the demand for the relatively risk free Government securities has increased causing a decline in yield rates on Government securities.