x p guma : the role of monetary policy address by dr x p guma, deputy governor of the south african reserve bank, to the ipm annual business conference in association with nkr, durban, 18 may 2009. * 1. * * introduction mr chairman, ladies and gentlemen, let me begin by thanking you for your invitation to me to participate in this meeting today : for me it is usually better to speak when asked than to ask to speak. the title of my talk today is well known to those who have an interest in and may be well versed in the precepts of that component of public policy which is known as “ monetary policy ” : that is, the use of monetary instruments to influence macro - economic outcomes. this is so because it was the topic chosen for the presidential address delivered at the eightieth annual meeting of the american economic association on december 29, 1967 1 : an association which remains one of the foremost scholarly associations of the economic ( s ) profession ; and has been the scale upon which many nuggets of theoretical insight have been assayed. theoretical elegance within the confines of the spaces occupied by trained economists is one thing : relevance to, and understanding by, a broader public whose lives are affected by the actions of central banks is another. my purpose today is to speak to the latter. 2. the friedman statement for my purpose today, the questions to which answers are required are, in the main, those to which the 1967 – address was directed, namely : i ) what monetary policy cannot do. ii ) what monetary policy can do. a paraphrasing of friedman would indicate that the course adopted by central banks in order to achieve a particular objective, cannot : peg interest rates for more than very limited periods ; … peg the rate of unemployment for more than very limited periods. these are, as stated in the address, only two of the limitations of monetary policy which can be drawn from the “ infinite world of negation ”. to the list could be added many others : for example, easy finance for smme ’ s, secure and guaranteed employment for all job seekers including graduates of tertiary institutions, full capacity utilisation for airline companies, unlimited connections for the cellular - less and infinite airtime for the connected 2. but, monetary policy can : iii ) prevent money itself from being a major source of economic disturbance. iv ) provide a stable background for the economy, such policy being the primary responsibility of national central banks

wp / 09 / 86. mboweni, t. t. ( 2008 ) “ monetary policy, inflation targeting and inflation pressures ” ; address to the bureau for economic research annual conference, johannesburg : 22 may. declaration on strengthening the financial system. g - 20 london summit, 2 april 2009. moreover, within the sarb, the financial stability department ( fsd ) has existed since the year 2000, its task being to identify possible threats to financial stability and suggest ways in which these could be mitigated. although its existence cannot guarantee that financial stability will be maintained, taken together with the existing framework which exists for the regulation and supervision of financial institutions, its work will assist the authorities to reduce the probability of systemic instability. finally, financial markets are likely to remain volatile as risk aversion and optimism about growth prospects fluctuate in response to emerging data and conflicting signals, as the most recent monetary policy review of the sarb indicates. dealing with this will require resolute application of monetary policy in accordance with the mandate to achieve price stability, within an inflation - targeting framework. thank you for your attention.