and senior officials of the bank as non - voting members. the mpc will consider and evaluate the state of the economy, the current stance of monetary policy and the operational procedures in the conduct of monetary policy and formulate the changes deemed necessary in monetary policy and operational procedures. the final decision - making power on monetary policy matters will nevertheless still vest in the governors ’ committee. in order to provide opportunities for public involvement in the monetary policy decision - making process, it has also been decided to create a monetary policy forum ( mpf ). the governor of the reserve bank will chair the mpf, and representatives of private business enterprises, labour and other interested institutions and organisations will be invited to participate in the meetings of the mpf. the mpf will meet twice a year to discuss macroeconomic developments and monetary policy issues. internal administration of the bank the internal decision - making process of the reserve bank will be changed in the coming year. in addition to the existing currency, payment and financial systems committee and the management committee, a budget committee will be formed. the budget committee will have the authority to compile and monitor the implementation of the bank ’ s annual budget. through a subcommittee on procurement, the budget committee will also be responsible for the procurement, management and control of supplies, services and assets of the bank. in a further attempt to achieve greater transparency, the bank has decided to establish a fully fledged media office. this office will be primarily responsible for focusing external communication, thus assisting the media, national and provincial legislative structures and the general public to gain a better understanding of the bank ’ s policies, decisions and activities. during the past year, considerable progress has been made with a number of other administrative projects in the reserve bank. these projects included the certification of year 2000 compliance of the banking system ’ s information technology infrastructure and applications, as well as the south african multiple options settlement ( samos ) system. operational contingency plans have been prepared to handle any problems that may arise over the year - end, including plans for the provision of additional cash, the management of liquidity and for continued clearing, payment and settlement through the samos system. simulations of the clearing arrangements were conducted on the public holiday on 9 august 1999 and the results were successful. moreover, the registrar of banks has issued a number of regulations to ensure that the banking sector is year 2000 compliant and, in collaboration with the financial services board, has prepared a booklet to inform the public of the preparations to overcome the

at the end of 1997. the volatility in international financial markets generated substantial increases in the turnovers of financial markets in south africa, including the markets in foreign exchange, shares, bonds and derivatives. the large outflow of foreign funds on the bond exchange contributed to an increase in the daily average yield on long - term government bonds from a low of 12. 67 % on 17 april 1998 – its lowest level since may 1994 – to 20. 09 % on 28 august 1998. so much liquidity was drained from the south african banking sector that the banks had to borrow large amounts from the reserve bank on a daily basis. the liquidity shortage in the market pushed up short - term interest rates by about 7 percentage points, forcing the banks to raise their prime overdraft and mortgage lending rates to more or less the same extent. these higher lending rates had a dampening effect on real - estate transactions. share prices also dropped sharply, even though the market was supported by a strong demand from foreign investors. the high turnovers in the financial markets and a desire for precautionary money balances resulted in an exceptionally strong growth in the money supply. the growth over twelve months in the broadly defined money supply ( m3 ) reached 19. 4 % in june 1998 and declined only fractionally to 18. 9 % in august 1998. these high rates of increase were recorded despite a slowdown in the growth of nominal gross domestic product and apparently formed part of the rise in the nominal value of financial asset portfolios. this latter factor, together with an increased demand for working capital by the corporate sector and some borrowing by companies to tide them over a period of slack demand in the economy, were prominent forces behind a continued steep rise in total bank credit extension. the increase in the demand for bank credit was reinforced by speculative opportunities in a period of heightened volatility in the securities markets. the international financial turmoil halted the downward movement in the rate of increase in both production and consumer prices from the beginning of 1997. over the six months to september 1998, growth in production prices accelerated considerably as the rand depreciated. the consumer price index, in turn, was strongly influenced by a sharp rise in the prices of consumer services, notably the rise in mortgage lending rates. core inflation, which excludes certain food prices, interest costs, valueadded tax and municipal rates, was far more subdued, rising from 6. 9 % in march 1998 to only 7. 7 % in september 1998