The South African Reserve Bank (SARB) today released the second edition of the Financial Stability Review. The Financial Stability Review is central to the SARB’s transparent approach to enhancing the understanding of financial stability and encouraging debate on financial stability issues. Financial system stability is also regarded as an important precondition for sustainable economic growth and employment creation. According to the Financial Stability Review, international financial market conditions have continued to improve in response to strengthened economic fundamentals as well as improved investor confidence during the six months to June 2004. With the global economic recovery becoming well established and projected to gain further strength, certain risks to financial stability have diminished somewhat. Following an extended period of expansionary monetary policy, the global economy seems to be entering a phase of rising interest rates. Given high debt levels globally, such further tightening of monetary policy might negatively impact global financial system stability, should the quality of assets deteriorate. The South African financial system remained stable during the period under review, with the banking and insurance sectors deemed to be able to weather adverse shocks. The upward trend in annual house price increases was attributed to genuine shifts in demand, in line with fundamentals and not suggestive of overheating in the property market. The domestic financial environment appears to be sound and no evidence could be found that suggests a threat to financial system stability.  For further information:Andre Bezuidenhout, Head Financial Stability Department(012) 313-3401 The publication is available on the website, www.reservebank.co.za. Hard copies of the publication are available at the SARB head office in Pretoria. To obtain a copy please call Martie Staats (012) 313-3790.