on to consumers and lower prices are reflected in lower nominal salary settlements, then inflation could be structurally lower than it has been. this would give the monetary policy committee serious food for thought and in general would imply lower rates or at least a more gradual normalisation of interest rates. it could be a win - win - win scenario. if only we could dream! the south african economy is in a difficult space. we are negatively impacted by global developments, especially in europe and in china. combined with domestic concerns that i have outlined earlier, we do not anticipate robust economic growth or employment creation in the medium term. we hope we are wrong. it is possible for south africa to enter a virtuous cycle of rising confidence, rising investment and stronger growth fuelling employment gains ; bis central bankers ’ speeches leading to still higher levels of confidence. it will require strong leadership across the economy to create such a virtuous cycle. let me turn more directly to the challenges of collective bargaining. wage negotiations and the process of wage setting are important in the central bank ’ s thinking because wages are a key price in the economy. you would have often heard central bank governors decry periods when salary settlements are in excess of inflation and productivity growth. i would like to make clear what the bank ’ s thinking on this matter is. we are not opposed to workers receiving real salary increases. firstly, we feel that there should be an equitable sharing of productivity gains between workers and investors. an unequal sharing of such gains in either direction is unsustainable. secondly, there must, especially in the south african context, be an appropriate sharing of productivity gains between workers and senior managers. thirdly, productivity gains should be shared between existing workers and new additions to the workplace. if existing workers take all the productivity gains, then there is little scope to increase employment. the trend in recent years in south africa has been for workers to receive salary settlements in excess of inflation and productivity gains. firms respond to this situation by reducing staff numbers. this is clearly an unsustainable and undesirable development. the simple point that successive reserve bank governors are making is that in general, lower inflation enables larger real salary increases and higher productivity leads to higher incomes, higher investment and more employment. in conclusion ladies and gentlemen, i would like to leave you with a lesson from john nash, who won the nobel prize in economics for his work on game theory. his simple lesson is as follows : in

. ii. conduct of monetary policy next, let me explain the bank ’ s conduct of monetary policy. first, the bank has been pursuing powerful monetary easing through comprehensive monetary easing. under the comprehensive monetary easing framework, the bank encourages a decline in longer - term market interest rates and a reduction in various risk premiums through the asset purchase program. at the monetary policy meeting held last week, the bank, with a view to responding to the downside risks to the economy that i bis central bankers ’ speeches described earlier, decided to increase the total size of the program by about 10 trillion yen, to about 50 trillion yen. second, the bank has been making efforts to ensure financial market stability. third, in order to meet the biggest challenge for japan ’ s economy, which is the strengthening of the foundations for economic growth, the bank has been providing funds to private financial institutions that make lending and investment consistent with the policy goal. the funds are provided against collateral such as government securities, at a very low interest rate. with a view to making this framework more effective, in june 2011 the bank decided to establish a 500 billion yen new line of credit, through which it extends loans to financial institutions for their equity investments and the so - called asset - based lending ( abl ). the bank recognizes that japan ’ s economy faces the critical challenge of overcoming deflation and returning to a sustainable growth path with price stability. based on such strong recognition, the bank will continue to consistently make contributions as the central bank through the three - pronged approach that i have explained. bis central bankers ’ speeches