lower commodity prices and changing monetary conditions. secondly, higher food prices have contributed to higher inflation in 2014. while the pass through from the weaker exchange rate into generalised inflation has been more muted than in previous episodes of depreciation, there is evidence of second round effects and the bank has expressed its concern about rising salary expectations and a wage - price spiral. the bank raised interest rates by 50 basis points in january this year and by 25 basis points in july. notwithstanding these increases, the policy interest rate remains close to zero in real terms. monetary policy remains accommodative, cognisant of the weak real economy. going forward, it is possible that inflation will return to within the target range in the first quarter of 2015, but is likely to remain close to the top of the band. also of concern is that core inflation is rising towards the top of the target range. upside risks to inflation include higher electricity prices, rising wages and further depreciation of the exchange rate, which could be sensitive to changes in us interest rates. the bank has repeated that while monetary policy can be supportive of growth in the shortterm, higher trend growth requires a range of economic reforms including faster public infrastructure spending, better quality education and more effective dispute resolution mechanisms in the labour market. it is not within the realm of monetary policy alone to deal with the myriad of challenges confronting the economy. unrealistic expectations or demanding too much from monetary policy is likely to end in a loss of policy credibility. at the same time, monetary policy should be as supportive of growth as is possible, inflation permitting. indeed our monetary policy has remained highly accommodative, notwithstanding significant price pressures. bis central bankers ’ speeches this year saw the first significant banking failure in almost a decade. the south african reserve bank intervened to manage the failure of african bank, first through requesting the minister of finance to place african bank under curatorship and secondly by putting in place a package of measures that are in keeping with the financial stability board ’ s key attributes, aimed at enabling the institution to continue to operate and to serve its customers, which it is continuing to do. the reserve bank acted quickly to prevent contagion to the rest of the banking sector. not only is south africa ’ s banking sector healthy, but all the major players are liquid and well capitalised. so far, we have not seen any significant adverse effects of the difficulties at african bank on the broader financial markets or the economy, though

international financial turmoil and equally important therefore, is the assurance that we will continue to protect the purchasing power of the money in your pocket through appropriate monetary policies i. e. the pursuit of price stability. references bernanke, b. s. 2007. housing, housing finance, and monetary policy. speech at the federal reserve bank of kansas city's economic symposium, jackson hole, wyoming. 31 august. bernanke, b. s. 2008. fostering sustainable homeownership. speech at the national community reinvestment coalition annual meeting. 14 march. carney, m. 2008. addressing financial market turbulence. remarks presented to the toronto board of trade. 13 march. toronto : bank of canada. gramlich, e. m. 2007. booms and busts, the case of subprime mortgages. article presented on behalf of edward gramlich at the federal reserve bank of kansas city's economic symposium, jackson hole, wyoming. 30 august. krugman, p. 2008. how bad is the mortgage crisis going to get? fortune, 31 march. board of governors of the federal reserve system. 2008. flow of funds accounts of the united states. flows and outstandings, fourth quarter 2007. federal reserve statistical release. 6 march. south african reserve bank. 2007. financial stability review. september.