the exchange rate moved broadly in line with a number of emerging - market economies in response to tapering and capital - flow reversals. for example, between the beginning of november 2013 and the beginning of february 2014, net sales of bonds and equities by non - residents totalled just over r70 bn, but since then net purchases have totalled over r40 bn. the rand has generally depreciated over the period, although with a high degree of volatility in response to these wide swings in capital flows. however, idiosyncratic factors caused the rand to diverge from its emerging market peers at times. in particular, the rand was also influenced by the widening deficit on the current account of the balance of payments, and by a succession of protracted labour disputes in the motor - vehicle subsector and mining sectors in particular, which have undermined the country ’ s export and growth performance and prospects. the fraught labour relations environment contributed to the decline in domestic economic growth from 2, 5 per cent in 2012 to 1, 9 per cent in 2013, and the economy contracted by 0, 6 per cent in the first quarter of 2014. while the monthly data for april pointed to a better second quarter outcome, both mining and manufacturing outcomes in may were again negative. with household consumption expenditure and private sector investment growth expected to slow further amid weak business confidence, the bank has lowered its growth forecast for 2014 to 1, 7 per cent. under these circumstances, the high level of unemployment, currently at around 25 per cent, is expected to persist and employment growth is expected to remain constrained, particularly in the private sector. the need for fiscal consolidation is also likely to constrain public sector employment growth, which to date has been the main driver of employment growth since the onset of the crisis. the environment for monetary policy became increasingly complex under these conditions, with the inflation outlook deteriorating as the economy weakened. inflation breached the upper end of the target band in july and august 2013, but as the breach was anticipated to be temporary, monetary policy did not react to it. however, in january 2014, further pressures from the exchange rate and food prices saw a significant upward revision of the inflation forecast : inflation was expected to breach the upper end of the band for an extended period of about four quarters from the second quarter of 2014 and to peak at around 6, 6 per cent in the fourth quarter of 2014. in line with this forecast, inflation measured 6, 1 per

chair of the advisory technical committee ( atc ) of the esrb ; and the following members without voting rights : one high - level representative per member state of the competent national supervisory authorities ( the respective high - level representatives shall rotate depending on the item discussed, unless the national supervisory authorities of a particular member state have agreed on a common representative ), and the president of the economic and financial committee ( efc ) of the ecofin, which is the only representative of finance ministries. see, for example, bernanke and gertler ( 1995 ) and the response by cecchetti et al ( 2000 ). bis central bankers ’ speeches this view implied a strict separation between monetary policy and financial stability policy. central banks had been well aware of the importance of financial stability for the smooth conduct of monetary policy and of their varied responsibilities in ensuring financial stability on the other hand. yet, the importance of the possible implications of financial imbalances were underestimated and not systematically integrated in the analytical apparatus supporting monetary policy. this flaw in the intellectual underpinning misled central banks to downplay their financial stability functions and supported the general view that monetary and microprudential policy can be conducted separately, with monetary policy instruments geared towards achieving macroeconomic stability, and financial regulation and supervision aimed at preserving financial stability in the spirit of tinbergen ’ s policy assignment rule. 5 however, it has become clear by now that this strictly dichotomous view is flawed since monetary policy and financial stability policy are intrinsically linked to each other, given the powerful interactions between financial and economic conditions. as the recent crisis forcefully demonstrated, the previous mainly microprudential orientation of financial regulation and supervision proved unable to curb the tendency of the ever more complex and opaque financial system to generate excessive amounts of systemic risk. the unravelling of the associated financial imbalances brought about the biggest financial and economic disaster since wwii which, in turn, severely impacted on the conduct of monetary policy. as the monetary policy transmission mechanisms were affected, central banks had to take unconventional measures. the crisis also taught us that “ cleaning ” rather than “ leaning ” against financial imbalances can simply become too costly to be ignored ex ante. in addition, we also learned not to underestimate the moral hazard associated with the asymmetry in the previous consensus view of monetary policy. in the light of the obvious breakdown of the jackson hole consensus, the view has become more popular that under certain circumstances