programmes of gear, for example to increase total saving in the economy, are being implemented with greater effect, the way will be paved for lower interest rates on a more durable basis. the contribution that monetary policy can make towards the attainment of maximum economic development and the creation of more employment opportunities is, after all, limited to the intermediate goal of maintaining a stable financial environment. attempts to use monetary policy for wider purposes or, more directly, to solve problems in the real economic sphere are bound to lead to an inflationary dead end. however sincere intentions might be, the inevitable result will eventually be lower growth and even less employment. - 13 - the policy of persisting with essential monetary disciplines in south africa at this difficult stage of general transformation is understandably being opposed in some circles, due to adjustment fatigue and frustrated expectations. it is imperative, however, for the sake of attaining higher economic growth of a more durable nature, to ensure overall financial stability that will also make access to the world financial markets easier for south african borrowers. this task demands the continuous implementation of monetary policies that will create a financial environment with low inflation, a sound banking system, and well - functioning financial markets. i wish to place on record my appreciation to minister trevor manuel, deputy minister gill marcus, ms. maria ramos, director - general of finance, and also all the officials in the department of finance, for their continued support and close co - operation over the past year. i thank my colleagues on the board of the bank for their undivided loyalty during difficult times. finally, thanks are also due to the three deputy governors and staff of the bank for keeping the many activities of the south african reserve bank at a level where the bank has come to be respected as one of the most efficient institutions of its kind in the world today.

rates with the international markets more difficult. at the long end of the spectrum, the yield on long - term government bonds in south africa seems to be on the low side in real terms. short - term interest rates, and particularly bank lending rates at the other end of the yield curve, seem to be high in south africa, reflecting negative expectations on inflation, high risks involved in more short - term lending to an already overborrowed community, and a relatively high demand for funds. the conservative monetary policy measures applied by the reserve bank over the past eighteen months have paid off by containing the increase in inflation to below 10 per cent, despite the pressures arising from the depreciation of the rand last year. measured over a period of twelve months, the rate of increase in the overall production price index rose from 5. 3 per cent in april 1996 to 9. 6 per cent in march 1997, but then declined to 7. 5 per cent in june 1997. movements in the consumer price index followed a similar path and the increase in consumer prices, measured over twelve months, rose from 5. 5 per cent in april 1996 to 9. 9 per cent in april 1997, before declining to 8. 8 per cent in june 1997. at the time of the depreciation of the rand in 1996, a much higher rate of inflation was predicted on the basis of previous experience. there is, however, no reason for complacency. as long as the south african rate of inflation remains significantly higher than that in the major countries of the world, the integration of south africa into the global financial markets will be slow and turbulent. in view of the complex interaction between the level of interest rates, the rate of inflation, and the exchange rate in the process of financial globalisation, disruptive adjustments will be demanded from time to time. this will continue to complicate decisions for investors and cross - border traders. participation in the process of financial globalisation ultimately requires a high degree of convergence between countries in these basic financial aggregates. the domestic levels for interest and exchange rates can no longer be determined by governments or central banks in isolation. these financial prices will indeed increasingly be driven by international market consensus. at this stage, the international market imperative requires of south africa to bring its rate of inflation gradually in line with the rest of the world. alternatively, the country ’ s drive towards greater participation as an important borrower of funds in the world financial markets will be constrained. furthermore, what