rand, however, this upside risk to inflation could be mitigated by the very consequences of slow growth in some of the world ’ s major regions, mainly the pursuit of stimulative monetary policies. these conflicting challenges, and the uncertainties that surround them, call for particular vigilance on behalf of monetary policy - makers, and for a readiness to adapt one ’ s monetary stance to a changing macroeconomic environment. at present, the monetary policy committee remains of the view that interest rates will have to normalise over time. while the balance is delicately poised with regard to the timing of any policy adjustments, and requires careful judgement to avoid pre - mature action in the wake of an already weak economic growth environment, it is similarly important that the bank, in following a forward - looking approach to monetary management, does not allow any doubting of its preparedness to act when necessary and in keeping with the commitment to its primary objective. thank you. bis central bankers ’ speeches

and india into the world economy has not only had a positive effect on overall global growth, but has also had a dampening effect on global inflation. current projections show that macroeconomic developments in general are expected to remain favourable. for example, world growth is expected to moderate somewhat to 4. 9 per cent over the next two years and inflation is expected to remain under control with world inflation approximating 3, 5 per cent over the next two years. there are some risks and challenges however, accompanying these favourable projections. let me now briefly turn to some of these issues. 3. global inflation risks while the risks to world inflation may have moderated somewhat over the last six months, there are indications that renewed inflationary pressures could stem from capacity constraints in many countries as output gaps narrow. although productivity growth has helped to dampen inflationary trends in many countries, the significant increases in economic activity over the last couple of years have led to production in many countries being close to, and in some cases exceeding the potential output level. the south african economy has grown by 5 per cent in each of the last three years, a level that we consider to be slightly above potential. in addition, capacity utilisation rates in manufacturing have increased to levels of around 87 per cent. thus, all indications are that domestic capacity constraints have increased recently and when coupled with the narrowing of the output gaps internationally, the impact of these developments on the domestic inflation outlook requires close monitoring. the price of crude oil has increased quite significantly over recent years. the average price of north sea brent crude increased from us $ 38 in 2004 to us $ 55 in 2005, reaching us $ 65 for 2006. increased global demand and the perceived impact of geopolitical influences on global supply have been the dominant factors influencing oil prices. geopolitical tensions have renewed in early 2007 thus causing a rebound in the price of brent crude oil from around us $ 58 per barrel in january to around us $ 68 per barrel in april thus, underscoring the volatile nature of the market. high and volatile oil prices pose a significant risk as is clearly evident from recent inflation outcomes in south africa. petrol price changes over the past few months have mainly reflected the volatility in international oil prices and exchange rates. petrol price developments are currently playing an important role in the less favourable outlook for domestic inflation. persistently high and rising oil prices could cause higher inflationary expectations to become more entrenched, thus increasing the probability of a further tightening of monetary