somewhat slow to act as a shock absorber or adjustment mechanism to provide support to the trade account and the balance of payments. south africa ’ s current account deficit widened from 2. 8 per cent of gdp in 2010 to 6. 3 per cent in 2012. the trade deficit grew on account of increased imports related to the infrastructure investment programme, and lacklustre exports, as well as declining terms of trade. the depreciation of the rand exchange rate resulted in a deterioration in the bank ’ s inflation outlook, and the targeted measure of inflation increased from just below 5. 0 per cent in august 2012 to 6. 4 per cent in august 2013. still, however, there was little evidence of any demand pressures, with much of this increase driven by cost push factors. it is the improvement in growth prospects for advanced economies, in particular the us, that saw the rand again recouple with global developments on talk of asset purchase tapering. expectations of tapering had a profound impact on financial markets of both advanced economies and emerging markets, but more particularly for the latter as it is deemed that such a withdrawal of stimulus will negatively impact on portfolio flows to emerging markets. indeed, capital inflows retreated somewhat, and in south africa we witnessed a pull - back especially in bond inflows. during may and june this year, we witnessed a net outflow of over r17 billion from our bond market although this was partially offset by equity inflows. from the beginning of may the rand exchange rate depreciated from r8. 90 against the usd to levels of r10. 40 in august. a number of central banks in emerging markets reacted quite differently to these movements, with some tightening monetary policy despite an evident slowdown in growth, others intervening in the foreign exchange market and others draining liquidity in local markets. the central bank of brazil has since april this year, increased its policy rate by a total of 225 basis points to 9. 5 per cent due to inflation pressures and to shore - up the currency and limit capital outflows, while also lifting previous taxes on capital inflows. the central bank in indonesia increased the policy rate by 150 basis points thus far in 2013 to bis central bankers ’ speeches 7. 25 per cent, but in emerging europe we have seen various interest rate reductions. 1 the people ’ s bank of china ( pboc ) reacted by initially tightening liquidity conditions, only to be relaxed soon thereafter to reverse a substantial increase in

de reproduction permitted only if source is stated. chart 4 demand in the residential real estate market has weakened to take out a mortgage loan today, you need to pay interest of more than 3 %, up from 1. 3 % a year ago. more and more households are expecting that real estate prices will not rise any further. 5 on balance, house prices are still rising, albeit at a slower pace ( chart 4 ). that said, there are no signs of a severe slump in real estate prices or of overvaluations receding. 6 ♦♦♦ all in all, then, the macroeconomic risks have risen and the financial system remains vulnerable to these risks. for at the end of the day, a financial system is a network of financial contracts – contracts written on the basis of assumptions about the future. many of these assumptions will probably turn out to be overoptimistic : the financial situation of enterprises has _ _ _ _ _ _ _ _ _ _ _ _ _ according to the bundesbank online panel – households, at the beginning of 2022 only 2 % of german households were expecting real estate prices to fall, compared with just under 20 % in september. in 2021, overvaluations in the residential real estate market stood at between 15 % and 40 % in both cities and germany as a whole ; see deutsche bundesbank ( 2022 ), monthly report, february 2022. seite 6 von 18 deutsche bundesbank, directorate general communications wilhelm - epstein - strasse 14, 60431 frankfurt am main, germany, tel. : + 49 ( 0 ) 69 9566 33511, fax : + 49 ( 0 ) 69 9566 33077 presse @ bundesbank. de, www. bundesbank. de reproduction permitted only if source is stated. deteriorated, insolvencies in the corporate sector are likely to rise, and households have lost purchasing power. these factors are weighing on the financial system. chart 5 lending developments provide indications of how well the financial system can cope with these burdens. overall, lending is continuing to grow, but at a slowing pace. however, there is no credit crunch. many enterprises have drawn down credit lines to prevent liquidity bottlenecks and ready themselves for mounting energy prices. overall, lending to enterprises grew quite significantly – buoyed in part by government measures. households, by contrast, have borrowed substantially less to finance real estate ( chart 5 ) due to