##est pace for two decades or more, spare capacity is likely to be increasing, so we could expect these slower - moving prices to moderate over the next couple of years. this outlook has increased the scope for many central banks to reduce interest rates. until quite recently, concerns about inflation saw a majority of central banks tightening monetary policy. through to the september quarter of this year, those central banks raising interest rates had consistently outnumbered those reducing them, by a significant margin. there is now, however, a preponderance of reductions, in expectation of falling inflation. some of the reductions have been quite large. so monetary policy is easing. in circumstances where the financial markets are seriously impaired, of course, the central bank reducing the overnight interest rate may not make much difference to the price of credit to ultimate borrowers. this is not a major problem in australia, but in the united states rates paid by many borrowers have not fallen much, if at all, over the past year. it is also possible in some countries that, even at lower interest rates, neither the demand for credit nor the willingness of banks to supply it will be increased as much as would normally be the case. this does not mean that monetary policy in those countries has become completely ineffective – in many cases, it may simply lead policy - makers to lower overnight rates by more than usual. nonetheless, it is handy in such circumstances to have an additional channel – namely, fiscal policy – that can affect aggregate demand if needed. moreover, as the private sector in many countries is seeking to conserve wealth in the face of weakening incomes and lower asset values, it will presumably attempt to save more of its current income ; this might be particularly so for households. the problem is that, for the economy as a whole, if everyone attempts this change simultaneously, the “ paradox of thrift ” says that the economy will contract. so if that were indeed the situation that some countries faced, the stabilising policy would be for the government sector to decrease its saving, so as to accommodate the rise in saving by the household sector. so, in addition to monetary policy easing, fiscal policy adjustments are being made or contemplated in a number of countries. the question is how much scope the relevant governments have for such actions, before encountering the potential limits to credibility of their own balance sheets. those who already had largish deficits – which will get bigger as economic activity weakens – and / or who had high levels of public debt

however, the view that we prefer a strong rand to a weak rand is not well - founded. ideally, what we would like to see is an appropriately valued stable exchange rate, one that is not a significant issue for inflation. however, that is in an ideal world. in reality, the exchange rate is buffeted by a number of fundamentals which require adjusting to ; in south africa ’ s case, these fundamentals include commodity - price changes and capital flows. over time, we have learned the hard way that trying to ‘ lean against the wind ’ in the face of markedly changing fundamentals can be both futile and expensive, and any success in this respect is likely to be short - lived at best. that is not to say that we will never get involved, particularly in the event of liquidity drying up in the market. that said, let me be clear : no amount of central bank intervention, no matter how well intentioned, can prevent an exchangerate adjustment from aligning with fundamentals. the best contribution that the bank can make bis central bankers ’ speeches to competitiveness is to ensure that inflation is contained to the extent possible during periods of rand weakness to ensure that the depreciation is real. it is then up to the relevant sectors to take advantage of the increase in competitiveness. conclusion in conclusion, the domestic economy is facing a challenging future. while the global economy is a constraint, it is important that we do not focus on that only and ignore the very real domestic impediments to growth as well as the opportunities. it is too easy to sit back and bemoan the fact that we are hostage to global developments. there are things that can be done, many of which are clearly spelled out in the national development plan. we often hear about a focus on infrastructure, but we always seem to under - deliver in this respect. if south africa wants to develop its industrial sector, it needs to improve its infrastructure apart from electricity. there also needs to be policy coherence and less regulatory uncertainty. if we are to succeed in reducing unemployment, we must have a growing, competitive economy. competitiveness is not simply about the exchange rate ; it is a multidimensional concept. these dimensions include the quality of goods and services produced, reliability of delivery, reliable and appropriate infrastructure, appropriate technologies, appropriate and sufficient skills, the ease of doing business, and the minimisation of red tape. our financial sector is regarded as one of the most