, the tighter credit conditions are made. in south africa the cash reserve requirements have been adjusted from time to time, although it does not currently constitute a high - key instrument of monetary policy. it operates subject to constraints ; if the cash reserve requirements are set at too high a level, banks would lose business offshore and also to domestic nonbank financial intermediaries. the central bank has really one instrument to fight inflation in monetary policy terms. that instrument is the repo rate - interest rate / short term. anybody who has discovered another is welcome to advice us. my email address is : maxine. hlaba @ resbank. co. za. all technically sound suggestions are really welcome. in the meantime, the 100 + / - economists at the central bank are convinced that repo rate is the only weapon we ( the central bank ) have in combating inflation. 3. what is the primary objective of monetary policy? the primary objective of monetary policy is price stability. this is the position adopted by many central banks around the globe. the achievement and maintenance of price stability is the best contribution that monetary policy can make to the growth and development of the south african economy. we have no other primary monetary policy objectives. i will return to this a little later. 4. what then is our monetary policy framework? we announced the adoption of the inflation targeting monetary policy framework in february just over a year ago. the formal adoption of an inflation targeting framework indicated a shift from the previous informal policy framework. in the past, monetary policy had embraced an eclectic approach in which recognition was formally given to a medium to longer - term stance of monetary policy by monitoring developments in a number of financial aggregates and not only money supply and bank credit extension. the eclectic approach to monetary policy was applied during the 1990s, against the background of explicitly articulated guidelines for money supply growth. this framework recognised that the reserve bank had to combat inflation, as outlined in the constitution and the reserve bank act. however, since the bank ’ s policies had their most direct impact in the area of money and credit, intermediate guidelines were set for growth in money supply. it was argued that if money supply growth could be contained, too much money would not be chasing too few goods, and inflation would be brought under control. while formally it was stated that broad money supply growth should fall in the range of 6 to 10 percent per annum ( since the mid - 1990s ), in practice the bank adopted a relatively flexible approach where these

. the depreciation of the exchange value of the rand and an attended surge in food prices have continued to push price increases higher. since april 2002 international crude oil prices generally moved beyond the level of us $ 25 per barrel and exerted further upward pressure on the domestic price level. developments in the labour market also started to add to the momentum of price growth. e. g., increases in total unit labour cost ( i. e. wage increases adjusted for productivity changes in the formal non - agricultural sector ) have risen to levels above the targeted inflation rate for the economy. the year - on - year growth in unit labour cost accelerated, on balance, from 2, 4 per cent in the second quarter of 2001 to 6, 2 per cent in the second quarter of 2002. influenced by such external shocks and by the endogenously generated growth in labour cost, year - on - year inflation in production prices accelerated from 8, 2 per cent in november 2001 to 15, 4 per cent in august 2002. month - on - month increases in the prices of domestically produced goods exceeded the 1 per cent mark on all but three occasions in the past 11 months. consumer price increases followed suit. headline inflation ( reflecting increases in the prices of all consumer goods and services, including the cost of mortgage financing ) picked up from 4, 0 per cent in october 2001 to 11, 6 per cent in august 2002. cpix inflation ( i. e. when the cost of mortgage financing is excluded from the overall basket of consumer goods and services ) accelerated from a year - on - year rate of 5, 8 per cent in september 2001 to 10, 8 per cent in august 2002, and during 2002 it became apparent that the increase in prices was not only due to rising food prices. cpix excluding food prices increased from 5, 7 per cent in december 2001 to 8, 4 per cent in august 2002. inflation has undeniably moved to higher levels, clearly warranting a monetary policy response to avoid the entrenchment of higher inflationary expectations. despite the timeous monetary policy responses by the reserve bank, expectations of higher future inflations nevertheless developed. the findings of the inflation expectations survey of the bureau for economic research at the university of stellenbosch show that in the third quarter of 2002, the average expectation for cpix inflation in 2002 was 8, 5 per cent. looking further ahead, the average expectation was that cpix inflation would only decline to 7, 6 per cent in