has proved to be a long and difficult road. in the us, the arrc, which is sponsored by the federal reserve bank of new york ( new york fed ), has identified the secured overnight financing rate ( sofr ) as its preferred alternative for us dollar libor. sofr, which the new york fed began publishing earlier this year, is a secured overnight rate based on a much larger universe of repo transactions than in any other segment of the us money market. 2 see https : / / www. newyorkfed. org / medialibrary / microsites / arrc / files / 2018 / arrc - second - report. page 3 of 13 in the united kingdom ( uk ), the working group on sterling risk - free reference rates, operating under the auspices of the bank of england ( boe ), has identified a reformed version of the sterling overnight index average ( sonia ) as the uk ’ s preferred alternative for the sterling libor. like sofr, sonia is based on a larger transaction universe, which includes bilaterally negotiated as well as brokered unsecured deposits. what is next? and what are the implications for local market participants? instead of discussing these relatively well - known developments at length, allow me to rather spend more time talking about the future and give my views on what market participants should be doing to prepare for it. but before i do this, i must state the obvious. in the words of albert einstein : “ the future is an unknown, but a somewhat predictable unknown. ” thus, i can only make predictions about the path that regulators and policymakers across the world are likely to follow. these predictions are, however, based on the seeds that regulators have been planting in the recent past ( including through all the reforms i have just discussed ), highlighting the need for and importance of transitioning to a more robust and reliable interest rate dispensation. while the transition to alternative interest rate benchmarks is still somewhat uncertain, given how resolute regulators and policymakers are about the need for reform, and considering the steps they have already taken to give effect to that, i can comfortably predict that the future of a new or reformed set of benchmarks will come soon enough. it is worth reflecting on some of the transitioning issues being faced in the reform of libor. it is understood that libor is mostly entrenched in derivative markets. the arrc has estimated that about 95 % of the us

in south africa, clear signals or commitments between meetings becomes more of a communication challenge. there have been times when we have been criticised for “ surprising ” the markets. it may well be that in some instances the communication could have been clearer, but it is also the case that the market does not always fully appreciate the conditionality of the signals. let me give two examples. at the june 2004 mpc meeting, interest rates were left unchanged, but we were concerned about the risks to the inflation outlook. at the press conference following the meeting i warned that the ‘ party is over ’. this was widely quoted in the press and taken as a signal that we had reached the trough of the interest rate cycle. at the next meeting, we lowered interest rates by 50 basis points, which led to accusations that we had misled the markets. there were a number of significant changes between the two meetings. these included the improvement in inflation expectations and the appreciation of the rand which contributed to a lower inflation forecast. two lessons come out of this. firstly, any signal that is given is not an unconditional commitment. these commitments are conditional upon things remaining the same or changing in a particular anticipated direction. quite clearly, the conditions did not remain the same in this instance. the second related lesson is that markets should not lose sight of the fundamentals. instead of focusing only on what the bank says at a particular point in time, we should all keep track of how the fundamentals are evolving. policy should then be assessed on whether the move was justified on the basis of the new information. a more recent illustration was provided in april this year when we raised the repo rate by 50 basis points, again taking some in the market by surprise. however, the tone of the statement issued at the end of the previous meeting was intentionally ‘ hawkish ’, in order to signal a possible rate hike at the next meeting. the markets recognised the hawkish nature of the statement and most of the analysts picked up on this. yet when the increase came at the following meeting, it took some in the market by surprise. perhaps we did not communicate clearly enough, but perhaps the market was also not listening intently enough. 5. recent economic developments before ending, i would like to highlight some recent economic developments. in the past few weeks there have been a number of data releases which are of relevance to the bank. unfortunately most of these releases have not contained much news, and these developments underline the risks to