target if it did not act. the risks around its forecast implied that second - round effects would manifest if it did not act to prevent them. in the run - up to the hiking cycle, the bank noted with concern persistently above - inflation wage settlements despite weak growth and the clustering of inflation expectations around the upper end of the target range. these were signals that inflation could permanently accelerate if further shocks occurred. the problem is not that inflation may exceed 6 per cent ; the problem is that people may come to believe that the south african reserve bank does not target 3 to 6 per cent but instead targets 6 per cent plus a “ supply shock premium ”. such a perception would compromise the credibility that the bank has earned since inflation targeting was introduced in 2000. as i ’ ve mentioned, price and wage setters have enormous discretion if they believe that the true target is above the set range. the bank wants to avoid such a situation. “ fit for the future ” and the agribusiness and agro - processing sectors the environment that i have described today may feel discouraging to you. i would not want that to be my overarching message. i think that the actions south africa takes now, to reinforce our framework, will protect economic competitiveness in the global arena and encourage future growth. the national development plan has highlighted the potential of the agriculture and agroprocessing sectors, particularly for increasing employment but also growth. although south africa is a leading exporter of certain food commodities – including maize, sugar and fruit – there is great scope for expansion of the agro - processing sector. even a cursory glance at the manufacturing production statistics makes them look encouraging, as the weight of the food and beverages category has increased from 11 per cent in 2000 to 24 per cent currently. however, the contribution from manufacturing production to gdp has been shrinking over this period, so agro - processing volumes have merely grown in line with real gdp. i am sure that this observation will be a key focus of your conference over the next two days, so i will not say more on the subject. there are multiple advantages to expansion. agriculture is relatively labour - intensive, and it is a crucial source of employment for rural communities. increasing agricultural output would also strengthen food security, not just in south africa but in sub - saharan africa. furthermore, expanding manufacturing production is key to creating stable jobs suitable for our underemployed workforce. the international monetary fund has recommended expansion of

xolile p guma : south africa ’ s macroprudential policy framework and economic overview introductory remarks by dr xolile p guma, deputy governor of the south african reserve bank, at the launch of the march 2010 financial stability review, pretoria, 28 april 2010. * * * members of the press, other guests and colleagues, the financial stability department has existed since 2001, its task being to identify possible threats to financial stability and suggest ways in which these could be mitigated. in pursuit of this objective the department, on behalf of the bank, publishes the financial stability review semi - annually. today the bank releases the march 2010 edition of this publication. following the international financial crisis, the financial stability responsibilities of various central banks have become more explicit. the financial crisis has demonstrated, in general, that, although microprudential supervision makes a valuable and indispensable contribution to financial stability, it may be insufficient on its own to ensure systemic financial stability. for this reason, a macroprudential approach to policy formulation is necessary to complement microprudential supervision, and in fact monetary policy. the aim of such a policy would be to smooth the impact of the economic cycle on the financial system and contain the build - up of systemic risks in the financial system as a whole. the bank is, therefore, currently in the process of developing an integrated framework for a macroprudential policy approach to achieve its financial stability objective, and to help co - ordinate financial stability policy of other authorities. the global financial crisis has also led to wide - ranging debate on the need to enhance the international regulatory framework in order to strengthen the global financial system and improve its resilience to shocks. the proposals for reform have gone beyond banking sectors and have been expanded to include insurance industries, rating agencies, hedge funds and accounting standards. since the release of the september 2009 financial stability review, the risks to global financial stability have eased and systemic risks have continued to subside as the global economic recovery has gained momentum. the recovery has been instrumental in moderating earlier high levels of uncertainty. financial stability, nevertheless, remains to some extent, fragile in many economies, including those emerging - market economies hardest hit by the crisis. advanced economies, in particular, are still faced with the challenge of repairing damaged financial systems, on the one hand, and introducing regulatory reform, on the other. relatively conservative monetary and fiscal policies and structural reforms before the global financial crisis have helped many