During the year under review the South African economy experienced a relatively low growth rate, an unfavourable balance of payments situation and a still too high rate of inflation. Although the economy has now been in the downward phase of the business cycle for about two years, it has in certain important respects not yet reacted in accordance with the normal pattern expected at an advanced stage of a cyclical downswing. These include the fact that real gross domestic expenditure and imports did not decline to the same extent as during previous downswings, bank credit to the private sector at times increased without a corresponding increase in the demand for credit for domestic expansion, short-term interest rates increased and long-term interest rates remained high or increased slightly.In these circumstances, a policy of restricting bank credit to the private sector had to be pursued despite the relatively low level of domestic economic activity.