, overall headline inflation may have stayed below 6 percent recently even in periods of high food inflation, precisely because other components of the cpi basket such as “ clothing and footwear ” are inflating more slowly. fiscal dominance finally, one reason the rbi was historically reluctant to lock itself into an inflation - focused framework is because it feared government over - spending would make its task impossible. the possibility of fiscal dominance, however, only means that given the inflation objective set by the government, both the government and the rbi have a role to play. if the government overspends, the central bank has to compensate with tighter policy to achieve the inflation objective. so long as this is commonly understood, an inflation - focused framework means better coordination between the government and the central bank as they go towards the common goal of macro stability. i certainly believe that the responsible recent budget did create room for the rbi to ease in april. pragmatic inflation focus as you will understand from all that i have been saying, monetary policy under an inflation focused framework tries to balance various interests as we bring inflation under control. in doing so, we have to have a pragmatic rather than doctrinaire mindset. for example, emerging markets can experience significant capital inflows that can affect exchange rate volatility as well as financial stability. a doctrinaire mindset would adopt a hands - off approach, while the pragmatic mindset would permit intervention to reduce volatility and instability. nevertheless, the pragmatic mind would also recognize that the best way to obtain exchange rate stability is to bring inflation down to a level commensurate with global inflation. similarly, while financial stability considerations are not explicitly in the rbi ’ s objectives, they make their way in because the rbi has to keep growth in mind while controlling inflation. so if the rbi ’ s monetary policies are contributing to a credit or asset price bubble that could lead to a systemic meltdown and growth collapse, the rbi will have to resort to corrective monetary policy if macro - prudential policy alternatives are likely to prove ineffective. the transition to low inflation the period when a high inflation economy moves to low inflation is never an easy one. after years of high inflation, the public ’ s expectations of inflation have been slow to adjust downwards. as a result, they have been less willing to adjust their interest expectations downwards. household financial savings are increasing rapidly as a fraction of overall bis central bankers ’ speeches household savings, but not yet

are adequately capitalised. in this respect south african banks more than comply with the provisions. currently banks ’ capital adequacy ratios are well above the requirements, and our banks have a relatively low leverage ratio. other provisions, however, will be more challenging, and south africa, along with other countries in a similar position, has actively participated in these discussions in order to avoid possible unintended consequences. an important provision relates to the liquidity coverage ratio ( lcr ), to be implemented in 2013, which requires banks to have sufficient high - quality liquid assets to survive a month - long significant stress scenario. studies by the bank for international settlements showed that south african banks generally would be short of such liquid assets by virtue of their dependence on wholesale, short - term funding, which means that there would be a shortage of assets that satisfy the prescribed criteria. the basel iii liquidity framework does however give discretion to national supervisors to make available to banks a committed liquidity facility ( clf ) at a fee. in may of 2012 the registrar of banks announced the introduction of such a facility, which will be provided for an amount of up to 40 per cent on any particular bank ’ s net cash outflows under stressed scenarios. this access will be against acceptable collateral. the facility was introduced to prevent excessive increases in the cost of funding of banks and possible distortionary effects on the domestic financial markets, and takes account of the structural features of our system. we are, however, still concerned about the impact of the proposed net stable funding ratio ( nsfr ) which is expected to be implemented in 2018. again, the structural features of our financial system may pose a challenge, given that most long - term saving in the economy is done through the non - bank financial institutions, which in turn provide short term deposits to bis central bankers ’ speeches the banks. to achieve the required ratios would mean that banks to try to attract more long term deposits, or need to reduce the maturity structure of their lending. such adjustments could have adverse consequences for the economy. however, we are not the only country with such concerns, and discussions with the basel committee on banking supervision are ongoing. our banking system was one of the few that emerged relatively unscathed from the crisis. at no stage did the reserve bank have to take any extraordinary measures to protect the banks, and the interbank market ran smoothly. prudent banking practices and oversight by the bank regulator meant that our banks did not create the type