three considerations stand out. first, as i have mentioned, the policy stance has been accommodative and has moved closer to neutral. but we have to treat neutral rate estimates with some scepticism. the available methods produce divergent results. it is clear, however, that we are not like brazil, where rates were recently cut for the first time in several years, but from the very high starting point of 14. 25 % ( and a real rate of nearly 9 % ). had we raised rates by 700 basis points, for example, the inflation outlook today might justify easier monetary policy. in our case, a cumulative increase of 200 basis points to 7 per cent translated to a real repo rate of just over 1 per cent. this compares to a potential real gdp growth rate of about 1. 5 %. second, the way we exited from the global financial crisis and its accompanying drop in growth currently limits the impact of our accommodative policy on growth. the standard macroeconomic justification for lower interest rates is to address a demand shortfall caused by excessive saving. south african saving habits can rarely be described as excessive. household debt levels remain high in comparative perspective. government debt is closer to international norms at about 50 % of gdp, but the pace of debt accumulation has been unusually rapid. our current account deficit is expected to remain over 4 % of gdp for the foreseeable future, and we have to keep on importing foreign savings to make up for domestic shortfalls. the financing cost of debt remains quite low, but our debt stock, counting both the public and private sectors, is uncomfortably high. private sector credit extension has been muted through much of the post - crisis period, reflecting both an ongoing reluctance to borrow and supply constraints related to regulations to limit the growth in household debt burdens. rapid credit growth has been seen in some sub - sectors, such as unsecured lending, but the larger credit aggregates for households have not moved significantly. this has been true both before and after we started raising rates. for these reasons, proponents of lower interest rates irrespective of the inflation rate remind me of the proverbial dogs chasing cars. the dog is unlikely to catch the car, and will be in trouble if it does – credit extension may continue to be weak while inflation rises. this characterises the 2011 to 2014 period well. there are, of course, some forms of credit growth we would like to see, particularly those

patrick honohan : additional capital requirements for four irish banks remarks by mr patrick honohan, governor of the central bank of ireland, at the publication of capital and liquidity results for the banking sector, dublin, 31 march 2011. * * * today the central bank announces additional capital requirements for four banks covered by government guarantee, namely bank of ireland, allied irish banks, irish life and permanent and ebs building society. this is part of what has been envisaged, since last year ’ s initial effort, as an annual capital adequacy exercise for the banks to get to grips with the scale of losses and the challenge of rebuilding the irish banking system. but the present exercise is on an exceptionally intensive and elaborate basis, and is designed to respond to market scepticism about the banks. this scepticism means that the banks have to hold more capital than would otherwise be needed, in order to convince international lenders of their solidity under all circumstances. this is being done as part of the eu - imf programme designed to restore market confidence to ireland, and in particular to its government finances and to its banks. the capital requirements being announced form part of what we are calling the financial measures programme, which represents the banking part of this two - pronged strategy. as you will hear, it involves not just a capital increase, but also a schedule of deleveraging and asset sales and some structural reorganization ( on which the central bank has been closely involved in advising, and which will be announced by the minister for finance ). all of these elements are interrelated. the overall increase in capital required is sizable. the main underlying reason for such a large increase is the need to restore market confidence. it is a prerequisite to the banks returning to normal functioning that they should have ample capital to meet even the market ’ s gloomy prognostications. the european commission, ecb and imf have endorsed the rigorous approach used. this year ’ s exercise has involved a detailed drilling down to the loan - by - loan level, including an intensive data integrity exercise and asset quality review. the central bank engaged blackrock solutions, an international firm with a strong reputation in the market for its capabilities in assessing losses in credit portfolios to conduct as comprehensive a review of the loan portfolios as was possible in 3 months, with an emphasis on determining the potential scale of loan losses in an adverse and unlikely macroeconomic scenario. reality is therefore not