is easy to see how this can be a suboptimal outcome from the point of view of economic development. fortunately, these difficult trade - offs have to be made by duly elected representatives of the people of south africa. as the south african reserve bank, we only look at what the implications of these are for monetary policy. furthermore, a rating downgrade will not only affect the price of government debt ; it will also affect what is paid by all the other bond issuers in the country – raising, for instance, the cost of issuing and servicing debt for banks and state - owned utilities. to maintain profitability, page 5 of 10 it is likely that banks will pass on these higher costs to their customers, in the form of higher rates on loans or higher bank fees or lower interest rates paid on deposits. in fact, higher funding costs for banks may be one of the reasons why the spreads between bank lending rates and the repurchase rate as well as deposit rates have widened since the global financial crisis. with many low - income households relying on cash loans for meeting their subsistence needs ( often at already - high rates ) or using bank deposits as a major form of savings, one can easily see how higher borrowing costs of banks can penalise them. equally, if a state - owned utility like eskom is forced to pay higher interest rates on its debt, such costs are likely to ultimately be passed through to their customers – in the form of higher electricity tariffs, including for poorer households. separately, south africa ’ s domestic savings are insufficient to meet its investment needs. offshore borrowing is therefore required to fund growth and development. so, any downgrade in sovereign ratings is bound, sooner or later, to have negative consequences for the exchange rate of the rand. this, too, can potentially harm the poorer households. historically, because of the openness of the south african economy, a depreciation of the exchange rate has tended to raise inflation. in turn, a higher rate of inflation hits the most vulnerable harder, especially people who depend on basic grants which only get adjusted once a year at most. in particular, food prices and transportation costs rise on the back of rand depreciation. this reflects one of two things : either the need to import some of these goods ( for instance petrol, which will over time affect the prices of public and collective transport ) or linkages between the prices of foodstuffs and those of agricultural commodities on the global market. these items account

##o rate, the repo rate path, which includes two further interest rate increases in autumn 2011, was therefore held unchanged. as usual, we pointed out that there was considerable uncertainty in the assessment of the future repo rate and that we would need to reconsider the monetary policy stance if conditions were to change significantly ( see figure 8 ). at the monetary policy meeting in july i said that i personally believed that the repo rate would be raised at all three meetings this autumn, especially if the sovereign debt problems looked to be resolved without any major negative effects on the financial markets. 1 but so far the management of the sovereign debt problems has not been particularly successful. i will come back to this. new statistics the statistics received during the summer on the swedish economy are largely in line with the assessments we made in july. however, the international outlook appears weaker, particularly in the united states. the statistics refer mainly to the second quarter and the summer months of this year, and do not actually say very much about the forecasts for the second half of the year and the coming years. see the minutes of monetary policy meeting no. 3 2011, sveriges riksbank. bis central bankers ’ speeches weaker international developments … since july, we have received preliminary national accounts figures for the second quarter of this year for the united states and the euro area. gdp growth in the united states was 0. 3 per cent in the second quarter of this year, measured as a seasonally - adjusted quarterly change. this was slightly lower ( 0. 1 of a percentage point ) than we were expecting in july. however, the national accounts for the united states also contained a review of earlier figures, which shows that the decline in 2009 was greater and the gdp level this year lower than was previously assessed ( see figure 9 ). the labour market improved in july, but not at a rate that points to a good recovery. cpi inflation in the united states remained high in june and july, 3. 6 per cent, which was unchanged from may. underlying inflation, excluding energy and food, was lower, but rose in both months to a level of 1. 8 per cent in july. gdp growth in the euro area was 0. 2 per cent in the second quarter of 2011, measured as a seasonally - adjusted quarterly change, which was also slightly lower ( 0. 1 percentage point ) than we were expecting in july. inflation in the euro area fell from 2. 7 per cent in june