put you back about r6, 60. against a basket of currencies, the rand has depreciated by roughly 6 per cent since the end of last year. the relatively moderate amplitude of the exchange rate movements of the rand – against a basket of currencies, at least – should be welcomed. prices in the financial and real - estate markets have reached new record highs. the financial and realestate markets remained buoyant, but with the changed outlook for mortgage interest cost, the rate of increase in real estate prices, which at times exceeded 35 per cent on a year - on - year basis, tapered off over the course of 2005. its most recent reading is still a quite strong 16 per cent. so embassy property must have turned out to be well - performing investments indeed. the price stability objective in south africa continues to be strongly supported by government ’ s management of its financial affairs with the national government budget for fiscal 2005 / 06 again formulated within a framework of fiscal discipline but with more emphasis on infrastructure development and a budget deficit for 2005 / 06 now projected to amount to only 1, 0 per cent of gdp, compared to the 3, 1 per cent of gdp projected in february. the government debt consolidation process has allowed the cost of borrowing to decline markedly. even though debt issuance has increased since 2003 / 04, sound debt management has been such that new issuance is spread across the maturity spectrum of the yield curve. the latter normalised somewhat in recent months owing, among other things, to the fact that the national treasury increased supply at the longer end of the curve. with the cost of borrowing falling as dramatically as it has, the bond market has become a more appealing corporate finance tool and, as such, corporate bond and commercial paper listings have become more popular. the corporate bond market has increased considerably in size – expanding from just under r40 billion in 2002 to over r130 billion today – an increase of over 200 per cent! the improvement in south africa ’ s long - term foreign currency debt rating from bb ( high risk, speculative grade credit ) in 1994 to bbb + in 2005 ( investment grade rating ), made south africa ’ s debt much more attractive to the international investing community. the most recent upgrades by fitch and standard and poor ’ s contributed towards tighter spreads on south african debt. the yield spreads on south african foreign - currency denominated bonds continue to remain substantially lower than those of emerging markets in general ( the emerging

over the medium term. combining financial assistance with strict conditions has brought the negative economic trends in the programme countries to a halt. the economic downturn in some of the most strongly affected countries may even have bottomed out in the near future. what is crucial now is to ensure that the programme countries do not stray from the path of essential fiscal, financial and structural adjustment. the second step undertaken was the strengthening of the framework for steering economic policy at the european level. it is aimed at preventing dangerous imbalances in both public budgets and current accounts more effectively in future. the governing council of the ecb has urged time and again that economic governance in the euro area be improved, calling for the stability and growth pact to be strengthened, for procedures to be put in place to counter macroeconomic imbalances and for the ceilings on public debt and deficits set out in the stability and growth pact to be transposed into national legislation in all member states. we welcome that the regulatory framework has been reformed accordingly. however, the regulatory framework alone cannot ensure that economic policies are sound. paper doesn ’ t blush, as clearly evidenced by the failure of the original stability and growth pact. the new governance framework can only be successful if it is implemented consistently, according to both the letter and the spirit of what has been agreed. its success thus depends on the action taken by the european commission and the council of ministers. all this is confirmed by taking a brief look at the current “ european semester ”, the new process for the coordination of economic policy in the european union. i fear that the unsound economic policies in some member states are once again not being opposed decisively enough. the rules of the new european governance framework can only be effective if they are strictly applied. in particular, deadlines for the correction of excessive budget deficits should, for instance, only be extended, by way of exception, in the event of exceedingly adverse circumstances. extensions should not become the rule. the third set of measures is to be found in the first steps undertaken towards a banking union. the measures are aimed, in particular, at disrupting negative feedback loops between banks and public sector debtors, and at halting the increasing fragmentation of european financial markets. all banks in the euro area, as well as the credit institutions in member states that have arranged for close cooperation with the ecb, will be subject to european supervision, the “ single supervisory mechanism ”. although the ecb will be responsible for the