have flexible markets that will emit understandable signals to all the participants in the economy, including the monetary policy authorities. or even better, to have markets that can be trusted to determine prices with a minimum of government intervention. 5. prospects for the south african economy now that the consolidation process in the south african economy has been achieved with some success, the basis has been laid for a new phase of steady and, hopefully, more sustainable growth. in the sphere of real economic activity, some scope has been created for higher growth in both production and expenditure. it will, of course, be good for future development if any increase in expenditure at this juncture could be concentrated in fixed investment rather than in private sector or government consumption expenditure. the south african balance of payments remains vulnerable and dependent upon a sustained inflow of capital from the rest of the world. we must continue to nurture the confidence of all potential foreign investors, and particularly of the long - term investors who are prepared to participate directly in real economic activity. without foreign capital inflows, any recovery in domestic economic activity will be short - lived. finally, the short - term consolidation process in the financial sector has not yet reached its final and acceptable destination. international financial markets observe the still relatively high rates of expansion in bank credit extension and in the money supply, the above average - rate of inflation, and the growing indebtedness of particular private individuals with circumspection. provided we can continue with the process of also improving equilibrium in the financial markets, the prospects are good for a better overall economic performance next year. in the longer term, economic growth at a suitably high level will, however, only become possible once the more fundamental economic reforms envisaged in gear have been implemented. the restoration of business cycle stability in the short - term was an important precondition for a revival of economic development, but it also paves the way for a more determined effort by all of us over the next few years to raise the overall production capacity of the economy on a permanent basis to a higher level.

do arise in the financial system, the bank may have to carefully contain them directly as “ lender of last resort ”. the lender - of - last - resort facility will not, however, automatically be made available to all banks in distress, but only in cases where the failure of a bank would pose a serious threat to the financial system as a whole. criteria will be established to specify the exit strategy of the reserve bank. a deposit - insurance scheme is being developed to cover retail depositors. this scheme could provide more latitude in deciding whether to close an ailing bank, without the concern that depositors in financially healthy banks may lose confidence in the banking system as a whole. sound financial supervision is a prerequisite for financial stability and warranted the debate during the past year on the feasibility of establishing a single financial regulatory authority in south africa. most countries have securities commissions responsible for the regulation of investment services and in many countries there is still a separation of banking and insurance supervision. current opinion in south africa is influenced strongly by recent developments in the united kingdom and australia where banking supervision has been moved out of the central bank into a single financial regulator. there are convincing arguments both for and against a single financial regulator. arguments for such a single regulator include issues such as the blurring of functional dividing lines between different institutions, the development of financial conglomerates, the exploitation of gaps in financial regulation and the achievement of economies of scale and a uniform style of regulation. arguments for the retention of bank supervision as a reserve bank function are based on the characteristics of banking, the special relationships between the bank and the banking sector, the high systemic risks in banking, the importance of a healthy banking system for effective monetary policy and the bank ’ s ability to compete for scarce human resources. it is important that all these arguments be carefully considered by government to find an appropriate approach to this issue that can continue to assist in the execution of monetary policy. a well - organised decision - making process is another important factor in the conduct of monetary policy. all monetary policy decisions are currently made by the governors ’ committee ( consisting of the governor and deputy governors ), while the monetary policy implementation committee ( mpic ) is responsible for carrying out monetary policy. although this decision - making process works well, monetary policy issues demand more attention. it has therefore been decided to create a monetary policy committee ( mpc ) for the formulation of monetary policy. the mpc will consist of the governor and deputy governors as voting members