t t mboweni : signing of a syndicated loan and comments on the south african economy comments by mr t t mboweni, governor of the south african reserve bank, on the occasion of the signing of the usd1, 5 billion dual tranche syndicated term loan facility, london, 18 july 2005. * * * ladies and gentlemen, i am delighted to address you once again on an occasion such as this and even more delighted to be back in this great city. with the weather you are having here, we could quite easily be experiencing an african winter a€¦ i mean summer. it is a pleasure to welcome you here and to be amongst friends such as yourselves who have shown great confidence in south africa. as many of you live in this city, and almost certainly all of you have operations in london, i think it is right and proper, as we gather here only 10 days after the attacks on london, that i express our sympathy and condolences, on behalf of the south african reserve bank, to those who have been affected. the number of many familiar faces present here today reflects both your commitment to south africa, as well as the south african reserve bank's commitment to building strong relationships with a range of financial institutions. the foreign credit facilities we seek to establish with international institutions such as yourselves are utilised from time to time, or fully drawn down over the period of the loan to supplement our foreign reserves. in this case the us $ 1, 5 billion facility is being used to prepay the us $ 1 billion dual currency term loan facility concluded in june 2003 and tranche b of the dual currency term loan facility concluded in july 2002. in the run - up to this syndicated loan, we were very encouraged to discover during our discussions that the market was more than willing to support a dual - tranche transaction, namely a three - year and a five - year tranche, at reasonable pricing. in negotiating the 2005 facility we took into account the maturity profile of the country's foreign debt, our financing strategy, as well as the desirability of re - establishing the five - year benchmark. whereas not too long ago, a five - year maturity would still have been the subject of debate, today it seems very natural for us to borrow for five years, and thus pave the way for other south african borrowers. it is therefore with great pleasure that we celebrate the successful conclusion of this syndicated loan. the loan was oversubscribed and

##sant of the impact of these developments on the prospects for the domestic economy. so, as william white asked two years ago, “ is price stability enough? 5 and, the short response to this could be, in my view, “ yes, in normal circumstances. no, in extra - ordinary times ”. that, after all, is why policy affords some discretion to the policy - maker. slave - like adherence to an invariant policy stance is unlikely to yield optimal outcomes when circumstances change dramatically – as they have in recent times. for this reason, principally, many central banks have accepted the distinction that may need to be drawn between price stability and financial stability. that these are not synonyms is evident from the evidence : the worst financial crisis in history has erupted to the detriment of global, real economic activity ; and did so in the united states of america despite the low rates of inflation that had been recorded there for some time 6. courtney n. blackman ( 1999 ) central banking in theory and practice caribbean cent for monetary studies, st. augistine, trinidad. in the address, friedman discussed the average level of prices ; not the rate of price inflation. william r white ( 2008 ) in bank for international settlements ( bis ) papers no 45, march 2009 for further discussion, see for example, bernanke, ben s. ( 2004 ) “ the great moderation ”, speech delivered at the meetings of the eastern economic association, washington, d. c., february 20. on the other hand, the proposition that price stability and financial stability are not mutually exclusive, indeed are linked is intuitively appealing. this is so because the transmission mechanism of monetary policy in contemporary, market - oriented economic systems is based on the assumptions that : 1. credit markets exist and operate efficiently ; 2. the policy rate of the central bank is the primary determinant of interest rates in the market for credit ; 3. there exist stable, rational and predictable relationships between money and credit, on the one hand ; and a host of macro - economic variables on the other ; and 4. the demand for and supply of credit are brought into equilibrium, in part, by “ the ” interest rate. when credit markets cease to operate, or operate inefficiently, one of the channels through which conventional monetary policy operates ceases to be, or becomes increasingly less, effective. there then arises a need to regain financial stability because financial instability has the potential to cause significant macro