to south african investors and companies. the hesitant recovery in the global economy, and particularly in europe, is negatively affecting south africa ’ s growth performance. the south african economy grew by just 1. 9 per cent in 2013, far below potential of around 3. 5 per cent. although the reserve bank projects an improved growth rate of 2. 8 percent growth for this year, it is still too low to make a meaningful dent in our unemployment rate. demand for our main exports is growing slowly and trading conditions for most firms remain difficult. in addition to global factors, south africa ’ s economic growth is also being adversely affected by a number of domestic factors including electricity supply constraints, strike action in key export sectors and infrastructure bottlenecks. in addition, the economy is constrained by persistent shortages of skilled labour that lowers our growth potential. for monetary policy, the present environment presents a dilemma of slowing growth on the one hand, but rising inflation on the other. given the fragile growth environment, the reserve bank has been more tolerant of inflation at the upper end of the target range for some time. however, the recent marked deterioration of our inflation forecast led the monetary policy committee to raise interest rates for the first time in six years. notwithstanding this increase, monetary policy remains accommodative, and the mpc will continue to focus on its core mandate of price stability, but with due regard to the impact of its actions on economic activity. economic growth needs to be driven by real investment, and currently growth in private sector investment has been relatively subdued. government ’ s massive infrastructure programme is essential to eliminate bottlenecks and shortages, thereby contributing to raising long term growth and productivity in the economy. the implementation of the national development plan will also support growth and investment as it is focused on raising our capabilities as a country and investing in our human resources. over the next two decades, south africa needs to raise its productivity levels, boost exports and ensure that not only do we significantly raise the rate of economic growth, but that it is also more inclusive. there are three core challenges that today ’ s world faces : food, water and energy. to briefly expand on just one aspect : by 2050, the world will need to produce about 80 percent more food than today to satisfy growing populations and rising food consumption. africa contains the largest proportion of underutilised arable land on the planet. this provides a huge opportunity for investment, not just in agriculture but in agroprocessing,

unconventional as it seems ”, peter sinclair and colin ellis, oxford review of economic policy, vo. 28 no. 4 specifically, in the bank of england charter 1694, the bank of england act 1998 and the banking act 2009. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice stability, defined as the resilience of the uk financial system as a whole so that it can serve uk households and businesses in bad times as well as good. what makes the bank of england the right institution to deliver those objectives? the answer is that our balance sheet is what makes us special and gives us the economic policy tools we need to be able to do that. our liabilities serve unique functions at the heart of the financial system : central bank money, whether in the form of bank notes or central bank “ reserves ” – the deposits held with us by financial institutions – provide the ultimate means of settlement for all sterling payments in the economy. and we are the sole institution with the power to create sterling central bank money. that power provides us with a wide range of tools that we can deploy in pursuit of our monetary and financial stability objectives ( as summarised in figure 1 ). the importance of reserves to the financial system means that bank rate, the interest rate that we pay on firms ’ reserve accounts, is the single most important interest rate in the uk. changes in bank rate influence interest rates across the economy including those charged by commercial banks and those in financial markets. that in turn affects aggregate economic demand and ultimately inflation. so having reserves on our balance sheet gives us a powerful tool that we can use in support of monetary stability. indeed in the years running up to the great financial crisis in 2007 - 08 this was the main monetary policy tool used by central banks – in peter ’ s terminology, the “ old normal ” for policy. a second way we can use the balance sheet in support of monetary stability is by using reserves to buy or sell other financial assets in the open market ; that lets us directly influence market interest rates. if we buy government bonds, for instance, the price of those bonds goes up which makes their yield – the effective interest rate earned by holders of bonds – come down. like reserves, government bonds play an important role as safe assets in the financial system, and so changes in their yields also affect broader financial conditions, aggregate demand and inflation. it is this process of using reserves