firms still see their financial positions as weak, the overall financial positions of firms, including small ones, have continued to show signs of easing. the cpi ( excluding fresh food ) is declining on a year - on - year basis due to the substantial slack in the economy as a whole, but the decline leveled out in august 2009 and the moderating trend of decline has continued. the outlook for the trend change in prices is determined by the aggregate supply and demand balance and the medium - to long - term inflation expectations. it should be noted that, statistically, the year - on - year rate of change in the cpi will decline for a year due to the introduction of subsidies for high school tuition and other policy measures in fiscal 2010, but in assessing the trend change in prices, it is necessary to exclude such one - off factors. in terms of the trend change in prices, with medium - to long - term inflation expectations likely to be stable, the year - on - year rate of decline in the cpi ( excluding fresh food ) is expected to continue to moderate as the aggregate supply and demand balance improves gradually. while i have thus far explained the baseline scenario for economic activity and prices, the bank is also fully aware of the risks concerning such scenario. upside risks to the scenario are developments in emerging and commodity - exporting economies. the robust growth of emerging and commodity - exporting economies has driven the pick - up of japan ’ s economy. if the growth in those economies further accelerates, it will pose an upside risk to economic activity in japan. meanwhile, downside risks, although somewhat diminished, include the possible consequences of balance - sheet adjustments in the united states and europe as well as potential changes in firms ’ medium - to long - term growth expectations. moreover, attention should continue to be paid to various recent international financial developments and their effects. with regard to prices, there is a risk that inflation will rise more than expected in the event of a rise in commodity prices due to higher growth rates in emerging and commodity - exporting economies. on the other hand, there is also a risk that the rate of inflation might decline due, for example, to a decline in medium - to long - term inflation expectations. ii. conduct of monetary policy the bank recognizes that japan ’ s economy is faced with a critical challenge of overcoming deflation and returning to a sustainable growth path with price stability. therefore, the bank has been implementing various measures, taking into account the two factors that determine the

##butable to infrastructure and investment programmes, these are likely to generate a positive rate of return for the south african economy in the medium to long term. conclusion the list of challenges i have focused on is not exhaustive. nonetheless, from this brief and selective review, it is apparent that south africa ’ s economic policy environment, like that of many other emerging markets, will be challenging. clearly, south africa ’ s immediate priority is to strengthen the growth momentum. unfortunately, the role of monetary policy is limited in this regard as monetary policy cannot address structural deficiencies in the economy and influence long - term growth. while monetary policy should and will play its role within the confines of its mandate, a concerted effort is needed by all role players in agreeing and then effectively coordinating and implementing the necessary structural reforms, including addressing the electricity challenges facing the country. this requires a strong, constructive, and thus effective partnership between government, business, labour and civil society organisations. the mpc is of the view that inflation risks are skewed to the upside. having indicated previously that, while not on a pre - set course and being data - dependent, interest rates will have to normalise over time, earlier this year we felt that short - term dynamics allowed for a pause on the interest rate normalisation path. there is now reduced flexibility in this regard bis central bankers ’ speeches and the recent deterioration in the inflation outlook will require the mpc to carefully assess when it will be appropriate to adjust the policy rate further. the forecast horizon is fraught with uncertainties, which calls for heightened vigilance, decisive policy action, and clear communication. it requires us to sharpen our analytical tools to better understand, and strengthen our capacity for forecasting, policy analysis and implementation. thank you. bis central bankers ’ speeches