, the tighter credit conditions are made. in south africa the cash reserve requirements have been adjusted from time to time, although it does not currently constitute a high - key instrument of monetary policy. it operates subject to constraints ; if the cash reserve requirements are set at too high a level, banks would lose business offshore and also to domestic nonbank financial intermediaries. the central bank has really one instrument to fight inflation in monetary policy terms. that instrument is the repo rate - interest rate / short term. anybody who has discovered another is welcome to advice us. my email address is : maxine. hlaba @ resbank. co. za. all technically sound suggestions are really welcome. in the meantime, the 100 + / - economists at the central bank are convinced that repo rate is the only weapon we ( the central bank ) have in combating inflation. 3. what is the primary objective of monetary policy? the primary objective of monetary policy is price stability. this is the position adopted by many central banks around the globe. the achievement and maintenance of price stability is the best contribution that monetary policy can make to the growth and development of the south african economy. we have no other primary monetary policy objectives. i will return to this a little later. 4. what then is our monetary policy framework? we announced the adoption of the inflation targeting monetary policy framework in february just over a year ago. the formal adoption of an inflation targeting framework indicated a shift from the previous informal policy framework. in the past, monetary policy had embraced an eclectic approach in which recognition was formally given to a medium to longer - term stance of monetary policy by monitoring developments in a number of financial aggregates and not only money supply and bank credit extension. the eclectic approach to monetary policy was applied during the 1990s, against the background of explicitly articulated guidelines for money supply growth. this framework recognised that the reserve bank had to combat inflation, as outlined in the constitution and the reserve bank act. however, since the bank ’ s policies had their most direct impact in the area of money and credit, intermediate guidelines were set for growth in money supply. it was argued that if money supply growth could be contained, too much money would not be chasing too few goods, and inflation would be brought under control. while formally it was stated that broad money supply growth should fall in the range of 6 to 10 percent per annum ( since the mid - 1990s ), in practice the bank adopted a relatively flexible approach where these

several years, at least judging by the level of real short - term interest rates, which remains unusually low. furthermore, the impact of such accommodation has not been felt as much as previous cycles would have suggested. in addition to the absence of demand pressures, the relatively subdued growth in money and credit extension, and the lack of significant gains in property prices over the past few years, suggest a lack of appetite among private agents for new borrowing. most probably, the elevated degree of households ’ leveraging at the time of the recession has acted as a constraint on their willingness and ability to respond to the sharp decline in interest rates. it is also noticeable that non - resident capital inflows into south africa have not, in recent years, fed into the kind of fast domestic credit expansion that one saw in several asian or latin american economies. the south african reserve bank ’ s policy response i have already emphasised that the sarb does not target the exchange rate. amid weaker economic growth, and with the currency depreciating for many reasons, several of which are independent of our domestic environment, raising interest rates aggressively in an attempt to prevent currency depreciation could quickly become a futile, if not counter - productive approach. the imf recently highlighted in its latest issue of the world economic outlook that bis central bankers ’ speeches currency depreciation can play a welcome role as an absorber of shocks, including terms of trade shocks. this is the case, of course, as long as the depreciation does not spill over into lasting and more broad - based price pressures, or threaten the stability of a country ’ s financial system. the risk of price pressures is where the main focus lies for the sarb. admittedly, financial stability is also an integral part of our mandate and focus. but at present, the latest rand depreciation does not pose immediate threats to financial stability. due to prudent financial management by both the public and private sectors, south africa ’ s foreign currencydenominated external debt represented less than 20 per cent of gdp as of the second quarter of 2015, even though it has risen in recent years. 4 it is true that foreign debt issuance by south africa ’ s corporate sector has increased quite significantly in recent years. however, it has not reached the levels seen in some other emerging countries, particularly in asia. furthermore, the banking sector ’ s foreign assets and liabilities remain relatively low, at 14 and 10 per cent of the banks ’ total