most recent forecast, inflation is expected to persist above the inflation target of 3 - 6 per cent, and is not expected to return to within the range before the end of 2009. unfortunately we see the risks to this forecast to be significantly on the upside. so exporters are likely to continue to face an environment of rising costs and high interest rates in the short term. we remain committed, however, to bringing inflation down to within the target range in the medium term. exchange rate issues south africa runs a sizeable current account deficit on its balance of payments. this implies that we import more from the rest of the world than we export. for 2007 this deficit amounted to 7, 3 per cent of gdp. this deficit has been sustainable because foreign investment attracted to the country has exceeded the deficit on the current account. given our strong infrastructural expenditure programme and high crude oil prices, our import demand is expected to remain strong. this means that we have to continue to rely on continued capital inflows, or else we need to improve our export performance. clearly, from a sustainability perspective the latter would be preferable. unfortunately our export performance has not kept up with imports, despite the significant increase in commodity prices. over the past few years, when the economy was growing at rates above 5 per cent, the bulk of net capital inflows were into the equity markets. the sustainability of these flows is, however, not only dependent on domestic developments. in the final quarter of 2007 we experienced significant net sales of bonds and equities by non - residents as a result of global risk aversion in response to the turmoil in global credit markets. these sales intensified in january and february as electricity supply constraints contributed to negative perceptions of our growth prospects. these developments impacted on the exchange rate which depreciated by about 20 per cent on a trade weighted basis in the first quarter of 2008. it has since recovered somewhat, but is nevertheless about 12 per cent weaker than at the beginning of this year. fruit and wine exports are particularly sensitive to exchange rate movements, and one of the consequences of the current financial market turmoil is that there has been a considerable amount of exchange rate volatility in international markets in general. since the beginning of 2008, for example, the us dollar has depreciated by about 6 per cent against the euro. so even if there were no domestic issues, the rand would still have experienced some volatility. the weaker exchange rate has

). the consortium has committed to underwrite a r 10 billion capital raising, and will – under the guidance of mr winterboer – be engaging with shareholders and other interested parties in this regard. members of the consortium have also offered to provide management and technical support. resolution will see african bank split into two parts : • on the one hand a good bank, which will be recapitalised as indicated above. let me emphasise here that the r 10 billion recapitalisation is for the good bank, which has a book value of r 26 billion net of portfolio impairments • on the other hand the bad book, which comprises a substantial portion of the nonand under - performing assets, will be housed in a vehicle with the support of the sarb in order to separate these from the good bank. as a result, the bad book will no longer form part of african bank – the bad book currently has a book value net of specific impairments of r 17 billion for which the sarb will pay r 7 billion – collection against the bad book will be continued, and indeed strengthened : there is no payment holiday for anyone owing on a loan from african bank every effort will be made to ensure that collections continue with the goal of avoiding any cost to the taxpayer arising out of this measure. a claw back arrangement will be put in place for the bad book to the extent that performance exceeds expectations. the proposal for the restructuring of the liabilities of african bank is set out below : • existing depositors, specified sundry creditors and instrument holders will be restructured and assumed by the good bank as follows : ‒ retail depositors and specified sundry creditors will be transferred at full value ‒ senior debt instruments and wholesale deposits ( excluding subordinated debt holders ) will be transferred at 90 % of face value following the restructuring ( the absolute interest rate will be based on the revised face value ) ‒ all other liabilities will remain in african bank • existing ordinary shareholders and subordinated debt holders will be afforded the opportunity to participate in the good bank • it is intended that the good bank holding company will be listed on the jse in due course, and will include the acquisition at fair value of the various insurance entities within the abil group an important aspect of the curatorship is that the curator has the discretion to suspend payments of interest. while interest continues to accrue, he is expected to suspend interest payments generally with immediate effect except for interest payments on retail deposits. bis central bankers ’ speeches