african financial sector. the bank has also made satisfactory progress with its own business continuity planning to ensure that the head office and branch activities would continue functioning in the event of any disruption. the attacks of 11 september 2001 have also contributed to increased international economic uncertainty, which has in turn resulted in lower economic growth in developed economies. the monetary policy focus in developed economies shifted from containing inflation to avoiding unnecessarily and undesirably low inflation. this has brought new terminology to the vocabulary of central bankers and economists. 3. domestic developments although 1998 is a mere five years ago, so much has changed in south africa in the interim that a brief reflection on that year is called for. by 1998, our democracy was only four years old and south africa was still re - integrating into the international arena. however, it was already obvious then that the country ’ s sound macro - economic policies were delivering the desired results. after a period of double - digit inflation covering the largest part of the 1970s and 1980s, inflation was in single - digits in 1995. it has averaged around 7, 8 per cent per annum over the last decade. the national government was also achieving success with its sound approach to fiscal policy. while the deficit before borrowing reached a high turning point of 7, 3 per cent of the gross domestic product ( gdp ) in the 1992 / 93 fiscal year, it equaled 3, 7 per cent of gdp for the 1997 / 98 fiscal year and declined further to 2, 8 per cent of gdp in the 1998 / 99 fiscal year. owing to the reduction in its deficit before borrowing, it was clear by 1998 that the national government had managed to slow down the growth in government debt to sustainable levels. not only had government proven by 1998 that it could avoid a debt trap, but it had also successfully reprioritised expenditure and consolidated the fiscus. the introduction on 9 march 1998 of the repurchase system of accommodation and liquidity provision to banks marked a significant change in the country ’ s accommodation system with the repo rate replacing the previous bank rate. in the five years since its introduction, changes have been made to the repo system to improve the transmission mechanism of monetary policy. the most important of these changes was introduced with effect from 5 september 2001, the date from which the sarb introduced a fixed repo rate to eliminate any ambiguity from monetary policy signals, which might have arisen under the previous flexible repurchase rate system. in 1998 we also experienced the

to work with borrowers to restructure troubled commercial real estate ( cre ) loans in a prudent manner, and reminded examiners that – absent other adverse factors – a loan should not be classified as impaired based solely on a decline in collateral value. 2 we continue to work with the large banks that participated in the supervisory capital assessment program ( popularly known as the stress tests ) to ensure that they have sufficient capital to support lending, even as many of these institutions repay their government capital. the outlook in my view, the outlook for economic activity depends importantly on our ability to build on the progress to date in improving the operation of financial markets and restoring the flow of credit to households and businesses. although household wealth has received a boost from the gains in the stock market over the last nine months and from the stabilization in house prices, household balance sheets remain weak. in 2009, household income received some temporary support from the tax cuts and see board of governors of the federal reserve system, federal deposit insurance corporation, office of the comptroller of the currency, and office of thrift supervision ( 2008 ), “ interagency statement on meeting the needs of creditworthy borrowers, ” joint press release, november 12. see board of governors of the federal reserve system ( 2009 ), “ federal reserve adopts policy statement supporting prudent commercial real estate ( cre ) loan workouts, ” press release, october 30. transfer payments enacted with the fiscal stimulus package and from the extensions of unemployment insurance. over the coming year, households should begin to see gains in income associated with an improvement in the labor market, and the drag on spending from past declines in real net worth should ease. as their income and balance sheets improve, consumers should have better access to credit. favorable trends in income and employment should also bolster consumer confidence, although one risk i see to the outlook for household spending is the possibility of a rise in the personal saving rate as consumers choose to shore up their balance sheets rather than spend. while good in the long run, increased saving means consumers are providing less of a short - run boost to the economy. the outlook for homebuilding will depend critically on the continuation of the uptrend in the demand for housing that began in early 2009. i anticipate that low mortgage rates and house prices that are still very low compared with the recent past will continue to provide important support for demand. and a shift in expectations from falling house prices to modest appreciation should encourage