reasons for believing that this move to a higher growth trajectory is not a passing phase, but is sustainable and can continue. the reasons are that disciplined fiscal policy has kept the public finances strong, with the budget deficit and public debt kept to prudently manageable levels ; and that monetary policy - the particularly responsibility of the reserve bank - has succeeded in bringing down inflation and holding it down, so that inflation has been within our target range of 3 - 6 percent continuously since the latter part of 2003. importantly, this track record of low inflation has helped to bring down inflation expectations, and our projection looking forward is that inflation will remain within our target range. it is this encouraging outlook for inflation that enabled us to reduce interest rates in april, and it is this platform of stability achieved by fiscal and monetary policy working together that gives encouragement that the higher growth trajectory we are experiencing will indeed be sustainable, even though there will inevitably be ups and downs along the way as we experience, for example, vagaries in the global economy and normal business cycle effects. thirdly, our external position has been strengthened. helped by the recovery in the rand from a sharp temporary fall in 2001, we have been able to make good progress in rebuilding our foreign exchange reserves, working towards more normal levels. moreover, although the general weakening in the dollar has at times been a source of strain on externally - competing sectors of our economy, we have over the past 18 months seen the rand tend to trade on a more settled basis within a broad trading range, with less volatility. the signs we are seeing of a stable and competitive exchange rate will help to sustain the higher growth trajectory of the economy as a whole. fourthly, we have in south africa a strong economic policy framework that has been exemplary in focusing on the development needs of the country in a considered and co - ordinated way, and as such is widely admired internationally. alongside the disciplined approach to fiscal policy, and the monetary stability our inflation targeting framework has achieved, well - constructed supply - side policies are directed at increasing the growth capacity of the economy, particularly with the current focus on education, training and skills development and on improving the physical infrastructure. alongside, truly impressive progress has been made in addressing the backlog of social neglect, as is evident from the impressive statistics and the visible evidence all around the country of low - cost house building, water supply, sanitation, health and education facilities and essential social support. all these elements of economic policy

system of fixed exchange rates with some success, while maintaining price stability. their success was due to consistent monetary policies and well - regulated financial systems. flexible exchange rate regimes nevertheless seem to shelter countries more effectively from the exogenous shocks that are typical of greater economic integration. trying to maintain an exchange rate target may be costly in terms of less activity in the domestic economy. in an inflation - targeting framework, exchange rates are generally allowed to reflect the supply of and demand for currency in foreign exchange markets. by allowing the exchange rate to be flexible, interest rates become more stable and reversals in international capital flows do not disrupt domestic economic activity as much. this does not mean that large exchange rate changes do not have serious effects on production. naturally they have a direct impact on the country ’ s international economic activity. depending on the importance of the external sector they could also have a serious impact on domestic production growth, job creation and inflation. however, large changes in interest rates generally have a larger impact on domestic activity than exchange rate adjustments. the art of central banking is to make these essential adjustments to the economy with the least harm to domestic economic activity and job creation. 5. conclusion globalisation and greater competition pose interesting challenges on a micro and macro level for enterprises and the public authorities. financial institutions and markets need to make many adjustments to cope with this changed environment. similarly, public authorities face new problems without easy answers. these issues have led to a considerable effort by international organisations to improve the world ’ s financial architecture. at the same time, national public authorities had to apply their minds to the policy approaches that the integrated world economy require. financial institutions, financial markets and the monetary authorities in south africa have adapted in a flexible and wellconsidered manner to changes in the world economy. we seem to have made the correct changes under the circumstances, and these changes should contribute to sustainable high economic growth and job creation in the medium to long term.