time castigated for not following a policy that will provide more money at lower interest rates for the purpose of financing the social upliftment programmes of the country. 2. the main objective of monetary policy the mandate from parliament to the reserve bank is not explicit on what “ protection of the value of the currency ” really means. this obviously opens up the way for malignant attacks on the bank, whatever objectives might be pursued. the main objective of the bank, however, is to bring inflation down. over the twenty years from 1972 until 1992, inflation in south africa fluctuated between 10 and 20 per cent per annum, with an average of about 15 per cent. this was obviously too high, and there was general public support for determined efforts by the bank since 1990 to reduce inflation to a single digit level. since 1992, the rate of inflation has been contained within the single digit level, fluctuating between 5 and 10 per cent. over the twelve months up to march 1998, the consumer price inflation equalled 5. 4 per cent, and at the production level, prices rose on average by 2. 3 per cent. in the absence of a formal quantified guideline from the government, the reserve bank defined its goal for inflation as a rate that will be more or less in line with the average rate of inflation in the economies of south africa ’ s major trading partners and competitors. in the present world environment, this will require a rate of inflation of even lower than 5 per cent. the reserve bank is often criticised for being obsessed with inflation, and for unnecessarily depressing the domestic economy, in its efforts to reduce inflation. studies like those recently produced by michael sarel, an economist at the international monetary fund, are thrown against the bank. 3. the monetary policy model of the reserve bank in 1986, south africa introduced the m3 money supply as an anchor for monetary policy. annual targets, or guidelines, for an acceptable rate of growth in m3 were announced by the bank, and decisions to influence overall liquidity in the banking sector, or to change the bank rate, were triggered by substantial deviations in actual money supply growth from the predetermined guidelines. to control the money supply, the reserve bank obviously had to manage the amount of liquidity available within the banking sector, and had to accept realistic interest rates. with fairly stable relationships between the money supply and aggregate demand, the model served south africa well for a relatively long period of time

francois groepe : recent international and domestic economic developments and changes to the financial regulatory architecture address by mr francois groepe, deputy governor of the south african reserve bank, at the actuarial society of south africa ( assa ) 2015 investment seminar, cape town, 27 may 2015. * * * introduction good day ladies and gentlemen. thank you for inviting me to this seminar and i look forward to sharing my views on the recent international and domestic economic developments, as well as changes to the financial regulatory architecture. global outlook the global environment facing south africa remains challenging and fraught with a high degree of uncertainty. developments in the us, in particular, continue to have spill - over effects on emerging markets in general and south africa in particular. while it is clear that monetary policy normalisation will ( and should ) take place, the timing of the initial “ lift off ” is still uncertain, and dependent on domestic developments in the us, not least in the labour market. this makes each data release a source of volatility, with good news in the payrolls data generally being interpreted that it will bring forward the expected commencement date of the normalisation process. perhaps of greater importance than the “ lift off ” itself is the question of the future path of interest rates. the us fed has gone to great pains to communicate a gradual path, but the “ dots ” ( the interest rate forecasts of the individual members ) that illustrate this are subject to a high degree of dispersion and change from meeting to meeting. this reflects the high degree of uncertainty. however, uncertainties in the us economy abound. the economy appeared to be well on the road to recovery in the second half of last year, but the first quarter data disappointed, following an advanced estimate growth rate of 0, 2 per cent. the general expectation is that this was due to temporary factors, but risks still remain that it could portend a more general extended slowdown. furthermore, there is still uncertainty regarding the improvement in the labour market : in particular, whether the improvement is a result of a decline in labour force participation rates, which could reverse should the improvement in the economy be sustained. finally, there is still a great deal of uncertainty about whether potential growth rates will return to pre - crisis levels or settle at a lower level, and this is likely to have implications for the longer term neutral rate of interest. the eurozone appears to be improving following a weak few quarters, with positive growth impulses from