price stability. it should, however, be realised that the interest rate is the price for money. the reserve bank can only influence short - term interest rates through the application of monetary policy operational procedures. although shorter - term interest rates influence the level of longer - term interest rates, other factors are also important when determining these rates. for example, at times you may find that the reserve bank reduces the repo rate, which lowers money market interest rates but leads to higher longer - term interest rates because of expected higher inflation. the reserve bank therefore only has an indirect influence on the level of the long - term interest rates that affect investor decisions. moreover, the reserve bank cannot arbitrarily set short - term interest rates without taking careful note of underlying economic and financial conditions, and it is not the function of the bank to promote economic growth in an artificial manner. at most, the reserve bank can only create stable financial conditions, which are generally regarded as an important precondition for high sustainable economic growth. this we have attempted to do over the past decade in a way that would have the least harmful effect on real economic activity. the policies followed by the bank, together with fiscal and other policy measures, succeeded in creating greater price stability in south africa. in 1998 and 1999 the rate of increase in the consumer price index excluding mortgage interest costs ( cpix ) averaged 7 % a year. this rate of increase can be compared with inflation rates fluctuating around 15 % in the 1980s and early 1990s. the endeavours of the reserve bank to create these stable financial conditions were at times seriously hampered by exogenous shocks, particularly by volatile capital movements. in the past year we were again influenced dramatically by this volatility in foreign portfolio investments in south africa. non - resident investors sold large amounts of domestic securities because of socio - political events in africa, a shift of funds away from commodity - based countries to high - technology and manufacturing - oriented economies, a rearrangement of portfolios as a result of surging energy prices and higher international interest rates. after being net investors in south african bonds to the amount of r16. 5 billion from the beginning of 1999 until the end of january 2000, non - residents became net sellers of bonds totalling r15. 3 billion in the next six months up to the end of july 2000. moreover, the net purchases of shares by non - residents on the johannesburg stock exchange fell from r40. 6 billion in 1999 to only r

, further structural reforms will be important prerequisites to unlocking the economic growth and development potential of south africa. all of theses reforms will need to be nurtured carefully and it is crucial that they be supported throughout by a stable and transparent macroeconomic policy framework. 10. 4 in conclusion it is reasonable to look forward to the future with confidence : and this we do. references t. mbeki ( 2005 ) “ state of the nation address ” i. plenderleith ( 2004 ) “ always something normal from south africa ”