to 5, 1 per cent by the end of 2017. any sign that underlying price pressures remain contained would facilitate the task of the bank in dealing with the current conflicting risks facing real economic growth and inflation. of course, vigilance will be needed in the coming quarters, as the secondary effects of earlier shocks ( in particular on the exchange rate ) are still being felt – and there is no guarantee that inflation expectations will remain stable. so far, evidence on these fronts is mixed. expectations for cpi inflation one year ahead – as measured by the bureau for economic research among analysts, businesses and unions – drifted marginally higher over the past year but, at 6, 2 per cent, they are still very close to the 6, 0 per cent average of the past five years. break - even inflation expectations, derived from inflation - linked government bonds, are significantly higher ( around 7, 0 per cent as of 21 june for the five - year rate ), but this measure is highly volatile and sensitive to exchange rate fluctuations. as for wage developments, it is encouraging to note that the andrew levy measure of average annual wage settlements, at 7, 8 per cent in the first quarter of 2016, is little changed from the 7, 7 per cent gain observed on average in 2015. however, several key wage negotiations lie ahead, with a possibility that wage demands may take cognisance of the recent acceleration in inflation. with respect to both inflation expectations and labour costs, the next few months could be crucial. 6. investment - grade ratings, the rand, and inflation one important element in securing the stability of inflation expectations, in part because of the influence it is likely to have on the level and volatility of the rand, will be the ability of south africa to maintain its investment - grade rating – and this leads me to my concluding points. i do not need to stress how thoroughly the south african reserve bank has been monitoring the evolution of south africa ’ s sovereign debt ratings. a sovereign rating can have an impact on monetary policy because of how it influences the availability and cost of external financing, the yields on domestic debt and, in turn, the performance of the rand – both in absolute terms and relative to its emerging - market peers. south africa, being a structural net capital importer, needs to secure the best possible “ terms and conditions ” under which it accesses global sources of funding. any adverse developments on this front would probably further complicate the challenges of weak growth and

the extraordinarily large ‘ moral hazard ’ that has arisen over the past year is to require banks and possibly all financial intermediaries to hold contingent capital bonds, that is, debt which is automatically converted to equity when equity capital falls below a certain threshold ”. “ however, should contingent capital bonds prove insufficient, we should allow large institutions to fail, and if assessed by regulators as too interconnected to liquidate quickly, be taken into a special bankruptcy facility ”. so, he supports the second approach, and in that light is the latest legislation in the usa which is about to be adopted, as well as the proposals in europe which envisage measures of this kind. namely, “ restoring american financial stability act ”, which was passed in the us senate on may 20, would impose significant new obligations and restrictions for the sifis, envisaging a possibility for the fed to introduce rising strict rules for capital, leverage and liquidity. on the other hand, on may 26, the european commission proposed the member states to establish national funds, financed from taxes imposed on the financial sector, in order to assist in closing or reorganizing the unsuccessful banks. the macroprudent tools mentioned so far, do not by any means exhaust the list of suggestions. exploring adequate instruments continues, and we are all waiting to see what will be delivered both in the form of ideas and in the form of operational tools. iii. the crisis has proved that the price stability is not sufficient to achieve financial stability. basically, with small exceptions that have no impact on the adoption of political decisions, the dangerous influence of the growing imbalances in the financial system was not conceived. the central banks were happy for registering low inflation rates, so it seemed to sidetrack the rapid credit growth ; the lower risk aversion ; the increase in asset prices, and consequently, the mounting vulnerability on the financial market. that is why, o. blanchard and others, ( 2010 ) say that : “ the crisis has made clear that policymakers have to watch many targets, including the composition of output, the behavior of asset prices, and the leverage of different agents. it has also made clear that they have potentially many more instruments at their disposal than they used before the crisis. the challenge is to learn how to use these instruments in the best way. ” recently, petra m. geraats ( mаy 2010 ), concluded in the same direction : “ recent financial crises