achievements. notwithstanding this the recent dismal growth performance and the vulnerabilities referred to earlier mask layers of bis central bankers ’ speeches deep - rooted structural problems that manifest themselves in high levels of unemployment and massive inequalities. these in turn are caused by weak competitiveness, a poor skills profile and an educational system that, in parts, is dysfunctional, low domestic savings, low investment, uncompetitive product and labour markets and spatial distortions. south africa ’ s response should be focused on three strands. firstly, as a country, we require clear actions to stabilise the labour relations environment. secondly, the country has to take steps to address some of the areas of short term vulnerability. thirdly, a clear programme of reform is required to boost medium to longer term growth. much more important than the precise elements of a strategy is for government to be decisive, act coherently and exhibit strong and focused leadership from the top. there is clear recognition that south africa faces significant challenges ; what is required is decisive leadership from all role players that consistently demonstrates a coordinated plan of action to address them. this will go a long way to restoring confidence, credibility and trust. the bank will continue to focus on its expanded mandate and stands ready to play its part in such a coordinated national effort. thank you. bis central bankers ’ speeches

##balances led to low interest rates and excessive leverage, contributing to high consumption expenditure and asset price bubbles. this view suggests that the financial cycle is at the core of understanding the macroeconomy, and that because the financial cycle has a lower frequency than the business cycle, a focus on inflation and the business cycle results in too short a time horizon for monetary policy. monetary policy should explicitly take financial stability issues into consideration, either as a secondary objective or as an objective with an equal footing. this implies that the policy interest rates should be part of the macroprudential tool - kit and is likely to result in tighter monetary policy in a low inflation environment when asset prices are seen to be rising. it also creates the possibility of conflict between monetary and macroprudential policy. bis central bankers ’ speeches the alternative view, and one that appears to be evolving into the current “ wisdom ” or “ best practice ”, is that the crisis did not represent a failure of monetary policy, but rather a failure of regulation, both at the micro and macroprudential levels. furthermore, the interest rate is a blunt instrument to deal with financial crises, and the collateral damage of excessively high interest rates could be quite high. according to this view, monetary policy and macroprudential policies have different objectives and therefore require different tools and different committees. under such circumstances, there are possibly fewer implications for monetary policy, but clearly coordination will be required, and the potential for conflict between the two still exists. but this is true of conflicts between monetary policy and other policies such as fiscal policy. this approach does not necessarily imply that macroprudential policy should be conducted by the central bank. however, having monetary policy and macroprudential policy under one roof, ( and indeed microprudential policy ), facilitates coordination, but implies more responsibilities for the central bank. the approach that we have adopted in south africa is in line with this second approach. in terms of the twin peaks regulatory architecture, the responsibility for financial stability and macroprudential policy has been given explicitly to the bank. at present, this function is undertaken by the bank ’ s financial stability committee ( fsc ) which includes all members of the monetary policy committee. it is envisaged that once legislation has been enacted, the current fsc will be replaced by a financial stability oversight committee ( fsoc ) which will have both coordination and policy formulation responsibility with regards to financial stability and the implementation of macropr