##ilised for a period. pressure on the krone increased during the summer. norges bank responded by raising its key rates on six further occasions. following the last increase on 25 august, the deposit rate and the overnight lending rate were 8 and 10 per cent, respectively, i. e. 4. 5 percentage points higher than at the beginning of 1998. it is difficult to predict the direct short - term effect of changes in interest rates on the exchange rate. it is particularly difficult in instances where fluctuations in the exchange rate are amplified as a result of speculation, hedging and portfolio shifts in financial markets. 7 ) the exchange rate regulation norges bank ’ s use of instruments in 1998 was in keeping with the exchange rate regulation of 6 may 1994 : “ section 1 the international value of the norwegian krone is determined on the basis of exchange rates in the foreign exchange market. section 2 the monetary policy to be conducted by norges bank shall be aimed at maintaining a stable krone exchange rate against european currencies, based on the range of the exchange rate – 7 – maintained since the krone was floated on 10 december 1992. in the event of significant changes in the exchange rate, monetary policy instruments will be oriented with a view to returning the exchange rate over time to its initial range. no fluctuation margins are established, nor is there an appurtenant obligation on norges bank to intervene in the foreign exchange market. ” ( my underlining ) pursuant to these guidelines, norges bank raised the deposit and overnight lending rate by 1 percentage point on 25 august. in connection with the increase in interest rates the bank stated that instruments were subsequently to be oriented “ with a view to returning the exchange rate over time to its initial range ”. in the opinion of norges bank, the situation in the financial market was such that it would not be appropriate to make further use of its instruments. the substantial pressure on the krone towards the end of october hardly reflected economic fundamentals in norway. 8 ) interventions exchange - market interventions are an important instrument of monetary and exchange rate policy. norges bank intervened to support the krone for the equivalent of nok 29 billion in the period from mid - october to mid - december. unrest in international financial markets in the wake of the financial crisis in russia intensified the speculative pressure on the krone. it is the bank ’ s view that this speculation was not justified by economic fundamentals in norway. it was therefore necessary to defend the

is being exacerbated by trade tensions between the us and various other large economies, in particular china. increased tariffs, if they persist, threaten to reduce global trade volumes and disrupt complex supply chains. the recent rise in oil prices is a further challenge, driving up inflation and weighing on the trade balance of oil - importing countries. the price of brent crude oil has doubled since early 2016, but remains well below the high of approximately us $ 154 reached 3 ilzetzki, e., reinhart, c. and rogoff, k. ( 2017 ). exchange arrangements entering the 21st century : which anchor will hold? national bureau of economic research working paper 23134. page 3 of 8 in 2008. however, when priced in the currencies of emerging markets like brazil, mexico or south africa, brent crude oil is back near its historical highs. notwithstanding these concerning developments, global growth on aggregate remains relatively strong and is expected to moderate only marginally over the medium term. this trend is also reflected in the forecasts for south africa ’ s major trading partners where, on average, gdp growth is expected to slow slightly from 3. 6 % in both 2017 and 2018 to 3. 5 % in both 2019 and 2020. south africa faces two key external risks over the coming months. the first is a possible sharp and sustained drop in capital inflows, as us interest rates increase. the second is a further substantial rise in oil prices. the two could also conceivably occur simultaneously. if so, south africa would face increased inflationary pressure and a further drag on household disposable income. domestic economic developments the domestic economy has substantially underperformed in 2018 relative to expectations formed at the beginning of the year and the longer - term trend. indeed, the technical recession recorded in the first half of the year surprised most economic analysts. at the january meeting of the monetary policy committee ( mpc ), we had forecast gdp growth of 1. 4 % for this year. by the september mpc meeting, this was revised down to 0. 7 %. the weakness in economic activity witnessed in 2018 reflects a combination of transitory factors and more persistent constraints. poor weather conditions exacerbated the fall in agricultural output from 2017 ’ s elevated level. meanwhile, ongoing policy uncertainty and weak domestic demand resulted in a lack of business investment and hiring. moving into 2019, we are anticipating an economic rebound driven largely by an export recovery and improved growth in