the recent meeting of the mpc7. growth of just 0. 5 % is now forecast for this year, rising to 1. 3 % and 1. 5 % respectively in the next two years. this is clearly too low to make any meaningful inroads on unemployment. for most of the past year, headline inflation was above the upper end of the target range of 3 - 6 %, at an average of 6. 3 % and a peak of 6. 8 % in december. in the early months of 2017, inflation moderated considerably and returned to within the inflation target range in april. 5 organization of the petroleum exporting countries 6 south african reserve bank 7 monetary policy committee page - 3 - of 11 the inflation forecast presented to the mpc at its most recent meeting showed a marked improvement. while previous forecasts had suggested that the longer - term inflation trajectory would be uncomfortably close to the upper end of the target range over the forecast period, the new forecast showed a more benign path. inflation is now expected to average 5. 3 % in 2017 and 4. 9 % and 5. 2 % respectively in the coming two years, with a low point of 4. 6 % in early 2018. the core inflation forecast is just below 5. 0 % for all three forecast years. the drivers of these improved inflation outcomes over the past few months include : lower food price inflation, as the effects of the drought recede ; lower international oil prices ; lower electricity tariff increases ; a more resilient exchange rate than had previously been expected, coupled with muted exchange rate pass - through ; and weak domestic demand. more recently, there have also been indications of some wage moderation. despite the improved outlook, the mpc is still concerned that inflation expectations remain sticky at the upper end of the target range. as indicated in our post - mpc statement, we would prefer expectations to be anchored closer to the midpoint of the range. furthermore, we are aware that the inflation outlook can change quickly in the event of supply - side shocks. at this point, however, we view the risks to the inflation outlook to be broadly balanced. the main risk to the inflation outlook has, for some time, been the exchange rate. during the past year, while volatile, the rand has been relatively resilient, considering the adverse shocks it has had to face. at current levels, it is still stronger than it was at this time last year. the local currency has been supported by the

kingdom ( uk ), the bank of england ( boe ) announced the key elements of its 2017 stress test in march. the 2017 stress test includes two stress scenarios. alongside the annual cyclical scenario, the boe is for the first time running an additional exploratory scenario. the aim of this additional scenario is to consider how the uk banking system might evolve if recent headwinds to bank profitability persist page 6 of 9 or intensify. it includes weak global growth, persistently low interest rates, and stagnant world trade ; it has a seven - year horizon to capture these long - term trends. as i have mentioned before, stress testing forms an important component of the financial stability framework in south africa. as part of the 2014 fsap for south africa, the imf conducted a full stress - testing exercise for the banking and insurance sectors. the focus of the exercise was on both solvency and liquidity stress testing. in its recommendations, the imf proposed that the sarb develop a macroprudential stresstesting framework ( following a top - down approach ) to complement the existing bottomup exercises conducted by banks. in january 2015, the sarb established a stress testing division within its financial stability department. the division conducted a full stress - testing exercise on the domestic operations of the major banks in south africa during the period from december 2015 to april 2016. six major banks participated in the exercise, covering in excess of 80 % of the banking sector ’ s assets. the sarb requested the participating banks to conduct a bottom - up stress test focusing mainly on credit risk while the sarb conducted a top - down exercise using a common scenario. the stress testing division followed a formal risk identification and scenario design by developing a risk assessment matrix, involving the identification of the most relevant risks from the global and domestic environments, an assessment of their likelihood, as well as a qualitative evaluation of their impact on the real economy, the banking sector, and the financial system. major global risks were identified on which to base the scenarios ; these included a surge in global financial market volatility combined with a prolonged period of slower growth in both advanced and emerging markets. the results of the bottom - up stress tests were aggregated and validated against sarb ’ s top - down stress - testing exercise. the participating banks were found to be adequately capitalised to withstand significant credit losses throughout the stress scenarios before taking into account any mitigating action by banks