t t mboweni : risks to the inflation outlook – looking ahead to the august monetary policy committee meeting address by mr t t mboweni, governor of the south african reserve bank, to the oxford & cambridge business alumni of south africa ( ocbasa ), johannesburg, 2 august 2007. * * * honoured guests ladies and gentlemen : 1. introduction i would like to thank you for the opportunity to address such an illustrious gathering. i was not fortunate enough to attend either the university of cambridge or the university of oxford but should state that i followed the rowing competition held annually between the two universities with keen interest. i have always wondered how my alma mater – the university of east anglia – would perform in this competition. i am sure the students at the university of east anglia would relish such a challenge. members of the oxford and cambridge business alumni of south africa play an important role in the economic and social life of the country. members of the organisation include chief executive officers of banks, investment bankers, investment analysts, professors, bishops and headmasters, to name a few. my role this evening is to talk about the more mundane issues of monetary policy. i will share with you some of the issues that are of concern to the bank. these concerns are not new and they have been raised in recent mpc statements, but i thought i would elaborate on some of them in more detail. 2. the inflation target : where do we stand? before highlighting these issues, let me first remind you where we stand with respect to our monetary policy objective. our mandate is to keep cpix inflation within the inflation target range of 3 - 6 per cent on a continuous basis. this we successfully achieved for 43 consecutive months between september 2003 and march 2007. in april 2007 cpix inflation breached the upper end of the target at 6, 3 per cent, and remained outside the target at 6, 4 per cent in may and june. the major drivers of these developments were higher food and petrol prices. in these months, had food and energy prices been excluded, cpix inflation would have averaged around 4, 6 per cent. nevertheless there is evidence that underlying inflation is becoming more generalised as evidenced by the fact that this narrower measure of inflation has been trending upwards in recent months from a low of 2, 5 per cent in june last year. in response to these adverse inflation pressures, monetary policy has been tightened and we have increased the repo rate by a total of 250 basis points since june

department * advances in respect of which a bank raised a specific impairment impairment table table 2 : 2 : distribution distribution of of total total banking banking sector sector assets assets – – may may 2008 r bn % standard bank 721. 8 25. 2 absa 638. 9 22. 3 firstrand 552. 9 19. 3 nedbank 476. 9 16. 7 investec 165. 5 5. 8 other 304. 5 10. 7 2, 860. 5 100. 0 total banks source : bank supervision department table table 3 : 3 : south south african african bank bank presence presence in in cma and sacu countries march cma and sacu countries - march 2008 bank standard bank absa firstrand nedbank as % of bank assets as % of bank assets as % of bank assets as % of bank assets botswana1 0, 99 - 6, 8 - lesotho2 0, 42 - 0, 09 0, 35 namibia2 1, 56 - 2, 0 1, 07 swaziland2 0, 36 - 0, 18 0, 26 country source : bank supervision department 1 - southern african customs union ( sacu ) 2 - southern african customs union ( sacu ) and common monetary area ( cma ) table table 4 : 4 : macroeconomic macroeconomic convergence convergence targets targets year inflation ( % p. a. ) < 10 < 5 < 3 deficit1 / gdp ( % ) < 5 < 3 < 3 debt / gdp ( % ) < 60 < 60 < 60 < 9 < 9 < 3 indicator current account2 / gdp ( % ) notes : 1. deficit means the public sector deficit 2. external current account, excluding official transfers source : sadc secretariat july 2008 table table 5 : 5 : other other macroeconomic macroeconomic targets targets year economic growth ( % p. a. ) external reserves ( month of imports ) > 6 > 6 central bank credit to government ( % of tax revenue ) domestic saving / gdp ( % ) domestic investment / gdp ( % ) indicator source : sadc secretariat july 2008 references : bank for international settlements ( 2008 ) 78th annual report. bruwer, a. j. ( 1957 ) south africa : a case for a national gold and banking policy, cape town, h. a. v. m. south african reserve bank ( various years ), financial stability review south african reserve bank ( various years ), quarterly bulletin