price stability. stated in the words of section 224 ( 1 ) of the constitution of the republic of south african, 1996, “ the primary object of the south african reserve bank is to protect the value of the currency in the interest of balanced and sustainable economic growth in the republic ”. and south africa has had experience of most alternatives – including the gold standard, the gold - dollar standard, monetary aggregates and an eclectic approach. to use the intemperate language of the younger generation : been there, done that ; got the t - shirt. as has been stated above, it is possible to pursue price stability using alternative approaches : and, many have been tried. as has been observed elsewhere in this regard, “ take away inflation targeting and we will still have monetary policy, we will still have the same instruments of monetary policy, and the bank will still have a constitutional mandate to maintain low inflation ” 10, in the interest of balanced and sustainable economic growth in the republic. 6. conclusion in conclusion, permit me to emphasise the following points : – the proposition stated in the address, to which i have made reference, that our economic system will work best when economic agents can proceed with full confidence that the purchasing power of money will be protected remains central to the role that has to be assigned to monetary policy. in south africa, this is a constitutional imperative. recent developments have thrown into sharp relief the importance of financial stability : and some broad guidelines have been suggested, in particular, by the g - 20 – of which south africa is a member – at the summit held in london early in april 2009. at that summit, the former financial stability forum was transformed into the financial stability board : and was enjoined, inter alia, to “ pursue the maintenance of financial stability, enhance the openness and transparency of the financial sector, implement international financial standards … and agree to undergo periodic peer reviews ” 11. the institutional arrangements for accomplishing this will, clearly, differ from country to country but will certainly not be onerous for south africa as a great deal has already been done in this regard. two imf / world bank financial sector assessment program studies have been concluded ; the first in 2000 and the second in 2008. supervision of banks has been undertaken consistently and the basle ii framework was implemented on the due date. a useful review in this regard may be found in charles freedman and douglas laxton ( 2009 ) “ why inflation targeting? ”, imf working paper

. regional integration will give the region a stronger platform from which to participate in the global economy. for the remainder of my time with you, i am going to give you some observations on the recent economic developments in south africa. this may give you an indication as to what the short - term holds. but first let me return to the trends in the global economy. forecasts of slowing growth abound. in the imf ’ s world economic outlook published in april this year, it noted that prospects for global growth had weakened significantly since 2000. however, of some comfort is that the imf expects the slowdown to be short - lived. the second half of the year should see a pick up in us economic activity, growth in europe is expected to remain “ reasonably robust ”, and recovery in japan is forecast to resume next year. japan faces the challenge of addressing structural weaknesses, especially in its financial and corporate sectors. this global slowdown is bound to affect emerging market economies. and with this in mind, we must be vigilant. in this environment, commodity prices, upon which so many developing countries depend, are expected to weaken. indeed, the imf notes, that prospects in these developing markets, like south africa, depend on maintaining investor confidence. however, the imf acknowledges that these markets have made significant progress in reducing their external and financial sector weaknesses. many of them have moved towards sustainable exchange rate regimes and prudent debt and reserve management policies. against this backdrop of slowing world economic activity, the reserve bank ’ s composite leading business cycle indicator regained some momentum in the three months ending february. similarly the composite coincident business cycle indicator was on a definite upward trend from may 2000 to february 2001. preliminary indications are that this upward momentum persisted in the following months. however, by the end of the first quarter it became clear to us at the reserve bank that south africa could not escape the world economic downturn as weaker international demand affected export volumes in the first quarter. 2. domestic output and domestic expenditure the decline in export volumes contributed to a decline in economic growth. from 4 per cent in the third quarter of last year, growth slowed to 3 per cent in the fourth quarter. growth fell further to 2 per cent in the first quarter of this year. the slowing growth was largely restricted to the agricultural sector in the fourth quarter of 2000. however, by the first quarter of this year, the weakness reached other sectors of the economy. agricultural output dropped at an annual