the points made at that meeting of minds. while it was generally agreed that economic growth is one of the most important challenges facing all countries, it was emphasised that no universal recipe for growth exists since each country faces a different set of constraints. there is more to growth than good macroeconomic policy. to obtain higher growth does not seem to require a large set of very fundamental or deep reforms, but rather a more effective focus on a small set of binding constraints. it is extremely important that appropriate strategies be developed to properly identify such binding constraints. such action requires an institutional setting that allows for a dynamic process where problems are identified, on the one hand, but also effectively addressed, on the other. in doing so not only government failures have to be dealt with, but also market failures, such as large externalities, that require government action. the list of possible binding constraints is virtually endless. some studies have suggested that high levels of taxation discourage growth through their effect on incentives to work, save and innovate. others have pointed to the importance of protecting private property rights if growth is to be dynamic. still others note the importance of human capital, and highlight the role of education as a determinant of economic growth. excessive rules and regulations can stifle economic progress, slowing fixed capital formation, undermining flexibility and discouraging productive enterprise. establishing which of these, and many more candidate constraints, is most relevant and then getting policies right is crucial if trend growth is to be increased. as these examples illustrate, many of the things that impact on the quantity and efficiency of the factors of production are quite broader than monetary policy and the ambit of central bank influence. 1 / 4 as we all know, economic growth might be a necessary but not a sufficient factor in employment creation. what monetary policy can do sound monetary policy can provide a stable platform for sustainable economic and employment growth. this is recognised in national economic policy and in the south african reserve bank act, both of which assign to the bank the objective of achieving and maintaining price stability in the interest of balanced and sustainable economic growth in the republic. high inflation causes numerous well - documented distortions and frictions in the economy. the higher inflation is, the more variable it also tends to be, adding further uncertainty to economic decisionmaking. low inflation enhances predictability and planning, reduces the uncertainty premia built into nominal and real interest rates, and thereby supports sustained and balanced economic growth. the view that a monetary policy

growth rate of real gross domestic product ( gdp ) in the fourth quarter may understate the economy ’ s forward momentum. that is because real gdp growth in the quarter was held back by a sharp slowing in the pace of inventory accumulation. the revival in demand, production and confidence strongly suggests that we may be much closer to establishing a virtuous circle in which rising demand generates more rapid income and employment growth, which in turn bolsters confidence and leads to further increases in spending. the only major missing piece of the puzzle is the absence of strong payroll employment growth. we will need to see sustained strong employment growth in order to be certain that this virtuous circle has become firmly established. with respect to the labor market, there are conflicting signals. on one hand, the unemployment rate has fallen sharply over the past two months, dropping to 9. 0 percent from 9. 8 percent two months earlier ( chart 4 ). this is the biggest two - month drop in the unemployment rate since november of 1958. on the other hand, payroll employment gains have remained very modest – rising by only 83, 000 per month over the last three months bis central bankers ’ speeches ( chart 5 ). such modest payroll growth is not consistent with a sustained drop in the unemployment rate. the true story doubtless lies somewhere in between – but probably more on the side of the household survey that tracks unemployment. that is because measured payroll employment growth in january was probably temporarily depressed by unusually bad winter weather. although some of the recent decline in unemployment is due to a drop in the number of people actively seeking work, the household survey does show a pick - up in hiring. other labor market indicators, such as initial claims and the employment components of the ism surveys for manufacturing and nonmanufacturing, have also shown improvement recently ( chart 6 and chart 7 ), which suggests that the weakness in payroll growth is the outlier. although there is uncertainty over the timing and speed of the labor market recovery, i do expect that payroll employment growth will increase considerably more rapidly in the coming months. we should welcome this. a substantial pickup is needed. even if we were to generate growth of 300, 000 jobs per month, we would still likely have considerable slack in the labor market at the end of 2012. in monitoring employment trends, we also need to recognize that the data are likely to be quite noisy on a month - to - month basis. this is particularly the case during the winter months, when