prevented from rising. over the past six months, that is from 31 october 1996 up to 30 april 1997, the situation stabilised and the rand appreciated by 10 per cent as more foreign capital started flowing into the country again. against the background of the expansion in the domestic economy, and particularly the sharp increases in private sector domestic expenditure, pressures developed in the financial sector and total bank credit extended to the private sector increased by about 17 per cent during each of the past three years. this caused the m3 money supply to increase by about 15 per cent per annum, well above guidelines indicated by the reserve bank for an acceptable rate of increase in m3. the reserve bank was initially very tolerant with the relatively high rates of expansion in the financial aggregates, particularly with a continuous decline in the rate of inflation, which came down from 14 per cent in 1992 to 7½ per cent in 1996. inflation turned around from 5½ per cent over the twelve months up to april 1996 to almost 10 per cent in april 1997, mainly because of the depreciation of the rand in 1996. this forced the reserve bank to switch to a more restrictive monetary policy and to accept a substantial increase in interest rates. at this stage, the prime overdraft rate of banking institutions at 20 per cent is about 10 per cent above the current rate of inflation. the rates of increase in both bank credit extension and in the money supply are also beginning to show signs of a slow - down. a further important development in the south african economy was an almost explosive increase in the volume of activity in all the financial markets. the average daily turnover in the market for foreign exchange is now exceeding $ 7 billion. last year, a total turnover of $ 703. 5 billion was registered on the bond exchange of south africa, and of $ 27. 3 billion on the johannesburg stock exchange. foreign participation played a very important part in the development of the south african financial markets, but also contributed to greater volatility in these markets. it should finally be noted, as far as economic developments over the past three years were concerned, that, contrary to many predictions made at the time of the election of the new government, three successive ministers of finance succeeded in reducing the deficit in the budget of the central government from 8. 5 per cent of gross domestic product in 1993 to 5. 6 per cent in 1996 / 97. in the budget for the fiscal year 1997 / 98, the minister provided for a further decline in the deficit to only

in a tightening phase of the interest rate cycle. while price stability remains the primary focus of monetary policy, the bank has indicated that this objective will be pursued in a manner so that economic growth outcomes are not unduly undermined. as we explained in the july mpc statement, monetary policy is on a “ gradual normalisation path ”, which will be highly data - dependent. the sarb remains committed to its mandate of maintaining price stability in the interest of balanced and sustainable economic growth in south africa. in this regard, it is important to note that despite the 75 basis point increase in the repo rate since the beginning of the year, the real repurchase rate is still marginally negative thus ensuring that monetary policy remains supportive of the domestic economy. 3. the new financial services regulatory regime in south africa the great recession, which began in 2008 has shown that imbalances between the real and financial sectors of the economy could increase the vulnerability of the financial system. in addition, with hindsight, we now know that such vulnerabilities may not become evident solely through the supervision of individual institutions. for this reason, macro - prudential aspects of financial stability have gained traction in policy circles around the globe. south african policymakers have also engaged in a process of reviewing and revamping the regulation of the financial sector. in february 2011, the minister of finance announced that south africa would be shifting to a “ twin peaks ” model of financial regulation. at the end of last year, the national treasury published the draft financial sector regulation bill ( twin peaks bill ), which provides some detail around the architecture of the twin peaks model. in terms of the twin peaks model, a prudential authority ( pa ) will be established within the sarb to oversee the safety and soundness of banks, insurers, financial conglomerates and key financial market infrastructures. the fsb will become the market conduct authority ( mca ) and will promote integrity and efficiency of financial markets in order to safeguard the interests of south african consumers of financial services. it goes without saying that co - ordination between the two regulators will be crucial to ensure the overall stability and robustness of the south african financial system. the exact date of twin peaks implementation will be finalised once the necessary legislative processes have taken place. it is envisaged that the twin peaks model of regulation will come into effect by the end of 2014 although this is dependent on the parliamentary process and the final enactment of the bill