for imports. the deficit on the current account should be financed comfortably by net capital inflows. barring any unforeseen shocks on the international front, the south african economy has entered a period of more rapid growth coupled with a fairly comfortable balance of payments situation. but the expected increase in the economic growth rate from last year ’ s paltry half - a - percent will fall far short of the levels needed to make inroads into south africa ’ s high unemployment rate. many of our people remain poverty - stricken, living below the breadline in makeshift shacks that do little to keep out the winter cold. to them, the concept of financial stability might be remote, but the only way in which their lot can be improved on a sustainable basis is if the reserve bank does not deviate from its course. globalisation of financial markets means that countries that are out of step with the rest of the world will be punished swiftly and severely. for our part, we must continue policies and programmes to contain inflation. we must also maintain sound and efficient financial institutions and markets. in other words, the main thrust of monetary policy has to be the maintenance of financial stability – that is, stability of prices, financial institutions and financial markets. ladies and gentlemen, every time you invite me to occasions such as these, expect to hear the same thing. thank you.

mr. stals discusses the current monetary situation in south africa and the implications for 1998 address by the governor of the south african reserve bank, dr. c. stals, at an investment conference arranged by huysamer stals in johannesburg on 18 / 11 / 97. 1. the task and function of monetary policy monetary policy is about money. governments give central banks the special right to issue money, and also a mandate to manage the money system in the interest of economic development. in the final situation, monetary policy is about the quantity of money, the price of money and the value of money. in the broad context of macroeconomic policy, the central bank is normally tasked with the function of protecting the value of money. this is but an immediate objective, making an important contribution to the achievement of the ultimate goal of economic policy, which is to sustain optimum economic development that will create more jobs and lead to an improvement in the standard of living of all the people of the country. monetary policy cannot be used to solve all the macroeconomic problems of a country. however, a stable financial environment with a low rate of inflation is regarded as an important precondition for the solution of many of the existing macroeconomic problems in any country. by focusing on the maintenance of low inflation, central banks do not distance themselves from the broader macroeconomic problems such as excessive budget shortages, untenable balance - of - payments deficits, short - term business cycle developments or uncompetitive international trade positions. it is indeed only in conditions of a stable financial environment, that is low inflation, that the real nature of the more fundamental macroeconomic deficiencies will be exposed, diagnosed, understood and rectified. in most cases, remedial action for structural economic ails will also not produce the required corrections in an inflationary environment. pressure is often put on central banks to harness the power of money creation for purposes other than pure monetary policy objectives, for example to facilitate the financing of public sector budget deficits, or to stimulate real demand for goods and services, or to help small businesses. pursuing all kinds of non - monetary objectives with monetary policy will, however, normally lead the country inevitably on the dead - end road of higher inflation. 2. recent monetary developments in south africa the main objective of monetary policy therefore is and should be to keep inflation low. in the absence of a national commitment to a predetermined and quantified target for inflation, the reserve