to issue the now famous statement of october 16, 2001, in which we reminded market participants to adhere to existing rules and regulations covering currency trading. it is worth noting at this stage that we very much valued the cooperation we received from the aci when we attempted to clarify certain issues to market players at the time. whilst many reasons have been advanced, and even a commission of enquiry established, to some extent those developments still remain unexplained. that massive depreciation in the exchange rate of the rand led to a deterioration in inflation, which represented a serious setback for us in the early stages of south africa's implementation of a formal inflation targeting monetary policy framework. having registered some success since the introduction of formal inflation targeting, and even managing to steer cpix into the target range in september and october 2001, the knock - on effects of the currency depreciation resulted in a sharp increase in inflation during 2002, with cpix peaking at 11. 3 % in november 2002. these developments necessitated a tighter monetary policy stance, which was delivered by way of repo rate increases totalling 400 basis points during 2002. but we are now back on tracka€¦ we are, however, pleased to say that the pressures that we faced then were relatively short - lived. our policy responses, whilst admittedly painful at the time, together with global and domestic developments allowed us to resume the positive path we had been travelling on before the interruption of 2001. the currency has recovered very well, and contributed to better inflation outcomes as well as a much improved inflation outlook. this in turn has allowed the monetary policy committee to reduce the repo rate by as much as 600 basis points between june 2003 and august 2004. it is indeed pleasing to note that the cpix inflation measure, which is the one that our policy is judged against, has now been within the specified target range of 6 - 3 % for almost a year. as you are well aware, owing to the combined efforts of the sa reserve bank and the national treasury ( nt ), the net open foreign currency position ( nofp ) was finally eliminated in may 2003, and the oversold forward book of the bank was closed out, in february 2004. we are glad to say that these developments, resulted in fully transferring the function of forward cover provision back from the bank to the authorised dealers. those positions also had major consequences for liquidity management in the money market. in fact they complicated our lives very badly! whereas

volatile exchange rate. the average daily turnover against the rand in the domestic foreign exchange market declined to just below us $ 6 billion in 2002, and remained fairly subdued at us $ 7, 7 billion in 2003. in 2004 to the end of september, the average daily turnover against the rand increased to above us $ 8 billion, and reached levels last recorded in 1999. we continue to see active participation by non - residents in our forex markets, especially in the swap market, where the share of non - residents currently amounts to around 65 %. non - residents accounted for about 60 % of total turnover in the foreign exchange market. higher turnover generally correlates positively with market activity and also provides a good measure of market liquidity. liquidity in the rand market usually increases when the currency behaves in a predictable manner. however, in an uncertain trading environment, bid - offer spreads widen and the market loses its depth as market participants become reluctant to quote prices, which was the case in 2001. during the latter part of 2001, bid - offer spreads widened to approximately ten cents ( from only three cents earlier in that year ) on regular trading amounts. conditions have improved drastically since then and spreads have narrowed back to approximately three cents currently. the price discovery mechanism in our forex markets now follows a much more normal pattern of two - way - risk. given that you are forex dealers, there is no need to elaborate. many of you have lived to be able to tell the story of the rand much better. one thing seems to be confirmed now : the rand is no longer a one - way downward bet. hopefully some of the lessons learnt in this regard, in the dealing rooms, were not too expensive! conclusion as you can deduct from the above, there are many areas where the bank has daily contact with yourselves in the market place. we value these relationships dearly. it is through yourselves, the banking industry and financial markets in south africa, that the bank is able to implement monetary policy. you are an essential pillar in our monetary policy transmission mechanism. we wish you well as an organisation. we hope that you may grow from strength to strength. once again thank you for the role you play in enhancing the reputation of our financial markets. enjoy the evening with us and have a safe journey home. thank you.