around 6 per cent for china and 5 per cent for india. as is not foreign to this gathering, oil prices have reached nominal high levels recently, thus placing upward pressure on inflation and complicating the task of monetary policy, specifically in the anchoring of inflation expectations. regarding the commodity boom, south africa is faced with a double - edged sword. whilst the demand for commodities boosts export revenues, surging energy price increases have had a significant upward pressure on import costs and inflation in south africa. 5. global financial market integration global financial market integration has increased significantly in recent years, posing further challenges to the conduct of monetary policy. there are divided opinions on the advantages and disadvantages of global financial market integration, but to a large extent most would agree that globalisation has been positive insofar as it has imposed market discipline on policymakers. there are many who think that globalisation increases economic growth prospects and reduces volatility. in some respects, globalisation and financial market integration also make policymakers aware of the importance of independent central banks. market participants are more comfortable in situations where central banks are see ( and actually are ) going about their primary objectives without fear, favour or interference from not only the political executive but all other stakeholders. one of the main challenges of this new global environment relates to the so - called “ contagion effect ”. the 1997 / 1998 global financial crisis is one example. another more recent example relates to developments in the us sub - prime market. to begin with the 1997 / 1998 crisis, economies with relatively weak macroeconomic fundamentals were punished the most. south africa, in particular, at the time suffered from capital outflows, a depreciation of the currency and subsequently inflationary pressures. as a result, monetary policy had to flow with the tide, and interest rates were increased by a full 7 percentage points between april and september 1998. however, as painful as the process was, not only for south africa but most emerging markets, lessons have been learnt and major reform of existing financial structures and adjustment in macroeconomic policies emerged. the 1997 / 1998 crisis highlighted concerns surrounding debt sustainability. as a consequence, many emerging market countries reduced their domestic and external debt, and in the process, reduced currency mismatches which in some respects rendered these emerging markets less vulnerable to currency depreciation. there have also been efforts to reduce the external vulnerability through debt buybacks, while reserves accumulation has also been gathering pace over the past few years

. of concern to us during the year was the persistent rise in domestic consumer demand which in recent times has been increasing at a year - on - year rate of around 8 per cent. this consumer exuberance has been financed by high rates of domestic credit extension and has led to record levels of consumer indebtedness of around 70 per cent of household disposable income. contributing to these high levels of demand have been rising real incomes, increased employment, lower interest rates and higher asset prices. both the housing market and equity markets have remained buoyant. the equity market in recent weeks has reached new record highs, having recovered from the reversal it suffered during the international market volatility in may and june when the all - share index declined by as much as 16 per cent. the rand exchange rate was also not spared the fall - out of the emerging market jitters in may and these developments have had an impact on the inflation outlook. having traded in a relatively narrow trading range for much of the first half of this year, the exchange rate reacted to the global risk aversion, and between 11 may and the middle of june it depreciated from r6, 10 to the us dollar to around r6. 80. subsequently, concerns relating to the widening current account deficit on the balance of payments in excess of 6 per cent of gdp caused the exchange rate to depreciate further. at one stage the exchange rate had depreciated to around r7, 90 to the us dollar in early october, but more recently it has been trading at levels of around r7, 20. in part the depreciation of the rand during 2006 should be seen as an element of the adjustment to the then widening current account deficit. already the trade account has improved in the third quarter of this year, and a stable rand at current levels will help stabilise the inflation outlook. in addition, the exchange rate adjustments are expected to be positive for export growth, and in conjunction with the adjustment of interest rates should help to ensure that domestic growth is driven by exports and infrastructural investment, rather than by strong consumer spending as has been the case in the past two years. international investor interest in south africa has nevertheless remained strong. despite the repricing of emerging - market assets in the middle of 2006, there has not been one month during the year to date in which non - residents had not been net purchasers of south african bonds and