t t mboweni : overview of the south african economy address by mr t t mboweni, governor of the south african reserve bank, at the 87th ordinary general meeting of shareholders, pretoria, 20 september 2007. * * * introduction the primary goal of the south african reserve bank ( the bank ) is the achievement and maintenance of price stability. however, the role of the bank in the economy goes beyond a narrow monetary policy focus. low and stable inflation provides an important framework for economic growth, but regulation and supervision of parts of the financial sector, as well as the oversight of the payment system ensure that the wheels of the economy continue to turn efficiently. in the past year we have had to execute our mandate in an increasingly difficult and uncertain environment. the south african financial markets have not been spared the effects of the recent volatility in the financial markets and we have to be increasingly vigilant of the risks posed to the domestic economic landscape. at the same time we have to ensure good governance with respect to the internal workings of the bank. it is against the backdrop of this volatile economic environment that i report to you today. today we also release our annual economic report which covers developments in the domestic and international economy over the past year. in particular, we highlight the main economic developments which have affected our operations and policy implementation. the focus of this address is on the main operational areas of the bank including monetary policy and its implementation, gold and foreign - exchange reserves management, financial stability issues, the national payment system, banking regulation and supervision, international cooperation and internal administration. monetary policy this past year has been a challenging one for monetary policy. as i reported in august last year, from the middle of 2006 pressures on inflation emerged, and have since intensified. by december 2006, year - on - year cpix inflation measured 5, 0 per cent compared to 3, 7 per cent in april of that year. inflation remained within the target range until april 2007 when it increased to 6, 3 per cent from 5, 5 per cent in the previous month. since then it has remained outside the target range. initially the main drivers of this adverse trend were food and petrol, but more recently there has been evidence of a more generalised upward trend in inflation, including that of services prices. the monetary policy committee ( mpc ) responded to these developments by raising the repurchase rate by 50 basis points in june 2006, the first increase since 2002. this was followed by successive increases

##inate in the g - 20 summit of finance ministers and central bank governors, which will be held in the western cape on 17 and 18 november 2007. policy topics that will be considered include the reform of the bretton woods institutions, commodity cycles and financial stability, and fiscal elements of growth and development. these topics were also the focus of g - 20 seminars hosted in brazil, the united states and turkey earlier this year. the international relations of the bank remain focused on strengthening co - operation with central banks and multilateral organisations. special attention has been given to the african continent and the southern african development community ( sadc ) region in particular, where efforts are geared towards the achievement of regional integration. the bank continues to take a strong leadership role in the committee of central bank governors ( ccbg ) in sadc. in its role as leader of the sadc payment system project and under the auspices of the ccbg, the bank has continued to facilitate the modernisation and harmonisation of the sadc regional payment, clearing and settlement systems. to date, the project has focused on the implementation of real time gross settlement systems, automated clearing and payment system oversight. significant progress has been achieved in this regard and the current focus of the project is on areas such as remittances, retail payment system risk reduction, the securities settlement project and capacity building for payment system oversight. further assistance will be provided to the democratic republic of the congo and madagascar in terms of the planning of their payment system development. the bank continues to be an active participant in the activities of the bis. the participation of the bank in and its contribution to the foreign exchange settlement risk subgroup of the bis committee on payment and settlement systems ensured that the bank keeps abreast of international developments in this area and promotes best practice. closer bilateral relations with other central banks have resulted in the signing of memoranda of understanding with the central banks of china and peru in the past year. in addition, the bank has received numerous visits from other central banks which have allowed for more exchange of information. the bank has maintained close relations with multilateral organisations. our collaboration with the imf and the world bank has resulted in a number of joint seminars and courses being presented by the south african reserve bank college ( college ) in 2007. these are open to participants from central banks and finance ministries from the african continent. internal administration the annual report of the bank was distributed to shareholders before this meeting. the total balance sheet of the bank shows