. the policy framework is forecast - based, with a medium - term outlook that primarily guides the bank ’ s response to anticipated movements in inflation, while taking account of prospects for economic growth. central to the forecast is an assessment of the prevailing gap between long - term trend output and actual output as a leading indicator of inflation. it is recognised that other factors also contribute to inflation. these other factors include foreign inflation, exchange rate movements, changes in domestic administered prices and taxes, as well as expectations of future price movements. therefore, it is essential that policy credibility is underpinned by rigorous analysis of economic and financial developments, and by an assessment of future trends and associated risks, with a focus on anticipated price changes and their implications for the medium - term inflation outlook. there is also a consideration of relevant indicators of financial stability in the domestic economy. all these considerations will form the basis for the formulation and implementation of monetary policy in 2014. bis central bankers ’ speeches distinguished ladies and gentlemen : i now wish to highlight inflation trends and other economic developments of the past year. you may recall that global output growth slowed marginally in 2013, from 3. 1 percent in 2012 to an estimated 3 percent, resulting in modest inflationary pressures, as capacity utilisation and high unemployment in major economies persisted. with respect to commodities, international oil prices were stable because of the emergence of new sources of supply and the easing of geopolitical tensions in some oil producing regions. the increase in food prices was also restrained due to ample grain production. consequently, global inflation decreased from 4 percent in 2012 to 3. 8 percent in 2013. average inflation for botswana ’ s trading partner countries declined from 4 percent in 2012 to 3. 4 percent last year. the countries the currencies of which comprise the special drawing rights ( that is, the united states of america, eurozone, japan and the united kingdom ) also experienced a decline in inflation, from an average of 1. 9 percent to 1. 3 percent in the same period, mostly due to weak economic activity, lower food inflation and the moderation in international oil prices. price movements in south africa followed the same trend ; they slowed down from 5. 7 percent in 2012 to 5. 4 percent in 2013, in this way, remaining within the medium - term target range of 3 – 6 percent. in botswana, inflation maintained a downward trend too, moving within the bank ’ s mediumterm objective range by june 2013. by the end of the

currency union where monetary policy affects the entire region, but financial imbalances may be local in nature. the current consensus is that price stability should continue to be the primary goal of monetary policy and that financial stability concerns should be mainly addressed by macroprudential policy. this is consistent with tinbergen ’ s assignment principle. there is also a clear alignment between the goals of price stability and financial stability, as the objective of monetary policy is more easily achieved under financial stability and the latter benefits from price stability. nevertheless, existing instruments are unable to fully address persisting significant 1 / 3 bis central bankers'speeches macroeconomic imbalances, and they still persist. monetary policy is not the right instrument as it may lead to substantial deviations of aggregate output and inflation from their desirable levels. macroprudential policy is the most promising tool to tackle financial stability risks. however, it is still quite recent – the underlying “ buffers ” were not built up before, they were built during the crisis. additional tools still need to be developed, and more work is still needed to establish a comprehensive macroprudential toolkit beyond banking, which to date is lacking. last week ’ s announcement by the european commission calling for a review of the european systemic risk board ( esrb ) is a good step in this direction. legacy issues thus need to be tackled also at the micro level, underscoring the need to address the interaction between macro and microprudential policies and guarantee that they are consistent. the design of the institutional roles of central banks should hence guarantee the consistency between these different policies, taking into account the existing complementary between them, as well as these policies ’ interaction with fiscal policy. ( ii ) the need to complete the european architecture the crisis revealed several gaps in the european architecture which have been addressed to a certain extent during the past decade but still require further decisive work. the setting up of the esm, the single rule book and the two pillars – the supervision and the resolution – of the banking union were major achievements. but one should not think that without what is missing still, they can work. they cannot. as we stand, the third pillar of the banking union, a common deposit insurance scheme, has not yet been implemented, thus leading to severe inconsistencies, as the recent resolution of banco popular espanol strongly put into evidence. one should not underestimate how much was achieved in a short time - span. however, in the rush