price stability. it should, however, be realised that the interest rate is the price for money. the reserve bank can only influence short - term interest rates through the application of monetary policy operational procedures. although shorter - term interest rates influence the level of longer - term interest rates, other factors are also important when determining these rates. for example, at times you may find that the reserve bank reduces the repo rate, which lowers money market interest rates but leads to higher longer - term interest rates because of expected higher inflation. the reserve bank therefore only has an indirect influence on the level of the long - term interest rates that affect investor decisions. moreover, the reserve bank cannot arbitrarily set short - term interest rates without taking careful note of underlying economic and financial conditions, and it is not the function of the bank to promote economic growth in an artificial manner. at most, the reserve bank can only create stable financial conditions, which are generally regarded as an important precondition for high sustainable economic growth. this we have attempted to do over the past decade in a way that would have the least harmful effect on real economic activity. the policies followed by the bank, together with fiscal and other policy measures, succeeded in creating greater price stability in south africa. in 1998 and 1999 the rate of increase in the consumer price index excluding mortgage interest costs ( cpix ) averaged 7 % a year. this rate of increase can be compared with inflation rates fluctuating around 15 % in the 1980s and early 1990s. the endeavours of the reserve bank to create these stable financial conditions were at times seriously hampered by exogenous shocks, particularly by volatile capital movements. in the past year we were again influenced dramatically by this volatility in foreign portfolio investments in south africa. non - resident investors sold large amounts of domestic securities because of socio - political events in africa, a shift of funds away from commodity - based countries to high - technology and manufacturing - oriented economies, a rearrangement of portfolios as a result of surging energy prices and higher international interest rates. after being net investors in south african bonds to the amount of r16. 5 billion from the beginning of 1999 until the end of january 2000, non - residents became net sellers of bonds totalling r15. 3 billion in the next six months up to the end of july 2000. moreover, the net purchases of shares by non - residents on the johannesburg stock exchange fell from r40. 6 billion in 1999 to only r

bankers ’ speeches policies put the stability of the euro area as a whole at risk. credible economic governance needs to be consistent and predictable. it also needs to be backed by timely, tough sanctions to encourage compliance. more ambitious policy requirements would better match the current reality of the euro area. it makes sense for macroeconomic surveillance to have a clear focus on the euro area countries with the greatest vulnerabilities. fiscal surveillance should avail of ambitious benchmarks when establishing an excessive deficit and setting the adjustment path towards a country ’ s medium - term budgetary objective. much closer alignment is needed between commitments at the eu and national levels. the perception that “ europe ” imposes policies on countries, when they have been agreed by their own politicians, is not helpful. national authorities need to take ownership of their european commitments. this means anchoring eu rules in their national legislation and making them mandatory and being held to account by domestic parliaments. major improvements are also needed regarding the production and quality of fiscal statistics. anticipating the final result of the negotiations, the ecb is encouraged that the amendments proposed by the european parliament go in the direction of significantly strengthening economic governance. we welcome the ambition the european parliament has shown towards greater automaticity, the broader and timelier use of sanctions, and reducing room for halting or suspending procedures against those member states breaking the rules. i hope that the negotiations will allow the texts to be significantly improved along these lines. for financial supervision issues, the aim of the euro area should be to construct a supervisory framework that reflects the single market in financial services. this would eventually imply a single financial supervisor enforcing a single rule book across all relevant financial institutions. we should not be surprised if this takes time to achieve in europe. it remains a complex issue even in unitary states. the united states, for example, has seven different supervisory authorities and nationwide interstate branching has only been allowed since 1997. in the medium - term, the establishment of the european system of financial supervision is appropriate for the eu27. however, i believe that a special regime for financial supervision is warranted for the euro area. euro area financial institutions require a different quality of supervision as they lack an exchange rate to “ bottle up ” cross - border capital flows, thus heightening the potential for systemic risk. another aspect that sets the euro area as a special case stems of course from the existence of a central bank providing the liquidity and acting as lender of the last resort to the banking sectors of all