cpi inflation has been inside the target range since february 2010, with the outlook being generally favourable, although developments around wage settlements and administered price increases continue to pose upside risks. the low interest rate environment prevailing in advanced economies has resulted in a consistent search for yield, and as a consequence, south africa, like other emerging markets, has attracted significant capital inflows. since the beginning of the year, nonresidents have purchased over r75 billion worth of domestic bonds and equities. the rand exchange rate has been somewhat volatile and in the past two months the rand / dollar exchange rate fluctuated between r8. 10 and r7. 18. after declining from 45 per cent in october 2008 to 13 per cent in april 2010, historical volatility of the rand increased briefly to 18 per cent in may 2010, but has since eased from these levels. much of the underlying volatility can be ascribed to changes in global risk aversion related to events in europe in particular, with significant volatility experienced in the usd / eur exchange rate. however, it is worth pointing out that the volatility in the exchange rate of the rand has been in line with the volatility observed in respect of currencies of other emerging market and developed countries. it is generally accepted that currency volatility and excessive appreciation unrelated to economic fundamentals can have an undesirable effect on the domestic economy, through adverse impacts on both the export and import - oriented sectors. while the bank is cognisant that an over - valued exchange rate over an extended period can be very costly to the economy, it also needs to be recognised that the open nature of our economy makes us more susceptible to all kinds of spillovers from the global economy and financial markets, making any attempts to seek to control the exchange rate at a particular level not feasible. not having or not seeking any particular target for the exchange rate, however, does not imply that reasonable and responsible steps cannot be taken to manage abrupt adjustments. as we have said on numerous occasions, any actions would have to be consistent with the inflation target. while the rand exchange rate is a critical variable, we need to take a more holistic view to ensure that the overall policy mix is designed and implemented in such a way that policies are complementary in order to raise economy - wide productivity, growth and employment while keeping inflation in check. 5. new challenges for central banks? over the past two decades, central banks in advanced

a d mminele : insulating south africa against global risks – challenges address by mr a d mminele, deputy governor of the south african reserve bank, at the 13th southern africa internal audit conference, sandton, johannesburg, 18 august 2010. * 1. * * introduction good morning ladies and gentlemen, and thank you to the institute of internal auditors for the invitation to speak at this 13th southern africa internal audit conference. it has been well over three years since the onset of the global financial and economic crisis. as with any crisis, many questions have been asked. could it have been avoided? what were the causes? what needs to be done to safeguard the financial system in the future? blame was apportioned everywhere. central banks were not spared the scrutiny, with some even suggesting that central banks were to blame for having a too narrow focus in the fulfilment of their mandates. it is argued that low policy rates, as a result of low and stable inflation, created the necessary environment for excessive risk taking. others blamed the crisis on a lack of proactive risk management practices. while there is no risk management system that can provide absolute assurance that events such as the financial crisis will not occur, it certainly did heighten awareness about risk management practices of companies. there is little doubt that the expectations of the internal audit profession have been raised considerably since this crisis. in my remarks today i shall touch on the evolution of the crisis, discuss some of the key global risks and their impact on south africa, look at some of the challenges that central banks are facing, and conclude with a few observations around what we need to do to ensure that, as a country, we are resilient and better prepared for future challenges. 2. from sub - prime debt to sovereign debt no sooner had the global economy emerged from recession in 2009 that it seemed there was yet another crisis brewing. some have argued that we actually never emerged from the crisis and that we were dealing with a continuum and just moved into the next phase of it. extraordinary policy measures implemented by governments and central banks around the world helped lift global output. however, in the process, there was also a significant transfer of debt from the private to the public sector as government spending in advanced economies was ramped up and substantial tax incentives were implemented. the combined effect of slower growth and higher spending was an increase in budget deficits in many advanced economies, to levels in excess of 10 per cent of gross domestic product ( gdp