the exchange value of the rand. essentially driven by a slowdown in imported inflation at the time, the year - on - year rate of increase in the all - goods production price index slowed down from 10, 0 per cent in december 2000 to 7, 8 per cent in september 2001. it then accelerated sharply to 14, 1 per cent in march 2002 on account of the depreciation in the value of the rand and the related surge in the imported component of the production price index and in the prices of import - competing domestically - produced goods. to this account of inflation developments must also be added the fact that both the money supply and bank credit extension are rising at double - digit rates. as far as the money supply is concerned, the growth over twelve months in m3 accelerated from 17, 0 per cent in december 2001 to around 19 per cent in both january and february 2002, receding slightly to 18 per cent in march. financial market volatility contributed to the public ’ s strong demand for monetary assets. finally, government ’ s finances are healthy due to firm control over expenditure and continued buoyancy in tax collections. the national government ’ s deficit before borrowing for 2001 / 02 amounted to some 1½ per cent of gdp, which indicates a high level of discipline. the non - financial public - sector borrowing requirement amounted to r11, 5 billion in fiscal 2000 / 01, or 1, 3 per cent of gross domestic product. the non - financial public - sector borrowing requirement in the first nine months of fiscal 2001 / 02 amounted to a surplus of r3, 4 billion, or 0, 5 per cent of gross domestic product. 8. conclusion in conclusion, it appears as that the slowdown in the global economy seems to have tapered off. the industrialised world, led by the united states, is experiencing vast improvements in economic conditions. this augurs well for economic prospects in the world economy. in general the emerging economies are expected to benefit from a resurgence in external demand. however, it is important to realise that there are some risks that threaten the pace and magnitude of the global recovery. the volatile geopolitical environment surrounding the oil market is one such risk. further, with the upturn in economic activity, it is to be expected that government spending that helped to make the recession short - lived will be curtailed. in addition, expansionary monetary policy that has been a characteristic of the last year will become more contractionary to keep inflationary pressures in check

mr. stals considers the role of monetary policy in stabilising the business cycle during the pre - and post - election period address by the governor of the reserve bank of south africa, dr. chris stals, at the annual conference of the bureau for economic research, in cape town, on 7 / 11 / 97. 1. introduction in the implementation of monetary policy the reserve bank should not be influenced by the fact that an election will take place in south africa in may 1999. the reference to the “ pre - and post - election period ” in the title of this address should therefore be regarded as coincidental. as always, monetary policy should be guided by developments in financial aggregates such as the money supply and bank credit extension, with the obvious objective of protecting the value of the currency. in contemporary monetary policy, central banks are normally also not guided by the objective of “ stabilising the business cycle ”. it is the task of monetary policy to promote a stable financial environment at all times, irrespective of the current phase of the business cycle. there is, however, a definite relationship between developments in real economic activity ( “ the business cycle ” ) and in the financial aggregates relevant for monetary policy. by concentrating on the trends in the financial aggregates, and not in real economic activity, monetary policy, however, has a better chance of maintaining financial stability that will, in the longer term, be conducive for sustainable economic growth at a higher level. a former governor of the reserve bank of australia once said the following : “ there was a recognition that ( monetary ) policy had to do more than stabilise the cycle : the problem with an exclusive focus on the business cycle was that we may well stabilise the real side of the economy without stabilising the price side of the economy ”. ( governor m. j. phillips, when the music stops, reserve bank of australia bulletin, july 1990 ). a slowdown in the business cycle will normally also include a slowdown in real gross domestic expenditure, incorporating declines in the growth rates of both consumption and investment expenditure. such slowdowns, however, may not yet at the time of the decline in expenditure justify the relaxation of monetary policy. the slowdown in real expenditure will after some normal time - lags be followed by a decrease in the demand for bank credit, which will also lead to a decline in the rate of growth in the money supply. timing monetary policy decisions