The Reserve Bank's Annual Economic Report for 1989, released in August of that year, suggested that an upper turning-point of the South African business cycle had been reached, "at least in a technical sense", towards the very end of 1988 or in the first few months of 1989; believed that a "soft landing" would still be possible; and did not rule out the possibility of some further growth in domestic output and spending in the quarters ahead, which would be compatible with some relief for the balance of payments. The Report, however, also identified various "problem areas" with regard to inflation, the then prevailing relatively high rates of monetary and credit expansion, the low level of the foreign reserves, and the still relatively high level of (current) government expenditure, as well as certain other inadequately resolved problems containing elements of a more "structural" character.Fresh policy approaches to these matters in the course of the year to mid-1990 arose from two major shifts in the authorities' broad policy orientation. Firstly, the curbing of inflation was stated by the Reserve Bank to be the prime objective of the Bank's policies early in the 1989/90 review period. In a similar vein, the Bank's Board of Directors and management in April 1990 formulated and adopted a clearly defined "mission" in terms of which the protection of the domestic and external value of the rand was accepted as the prime objective of the Bank. Specifically, the Bank would strive for a lowering of the South African inflation rates to levels that will at least not be higher than the average of inflation in the economies of South Africa's main international trading partners.Secondly, important moves towards the normalisation of various aspects of South Africa's external relationships and the domestic socio-economic and political situation since the disturbances of the mid-1980s, have for some time now allowed more attention to be paid to structural deficiencies of the South African economy and to the formulation of medium-term or long-term economic policies and strategies. These policies seek to rectify earlier structural distortions of the economy and to establish, among other things and within the framework of market-orientated policy action, realistic values for certain "key" prices or other variables in the economy (such as the level of real interest rates, the real effective exchange rate, real wages, and the real burden of taxation as the price of government services). Such key variables should be mutually consistent while also being reflective of the relative scarcities of the various means of production and productive resources in general, at the disposal of the economy.As a part of this thinking, the Reserve Bank on various occasions during the year also expressed its strong preference for interest rates that will be manifestly positive in real terms in virtually all conceivable conditions. The Bank was clearly justified in its view that its uncompromising anti-inflationary attitude - apart from seeking to address inflation as a severe socio-economic problem in its own right - would also serve the authorities' structural and growth objectives well, inasmuch as (1) international economic opinion has increasingly come to accept that the general price level is the only variable which is effectively under the control of central banks in the long run, and (2) relative price stability is conducive to stable economic growth. The establishment and preservation of relative price stability must therefore rank as the prime contribution which central banks can make to the fostering of economic growth and development.Problem areas in the economy in the third quarter of 1989 as referred to above, the Reserve Bank's new and unyielding anti-inflation attitude and the Bank's predilection for clearly positive real interest rates, the need to deal a blow to inflation expectations, and overseas interest rate developments, provided reasons for a further Bank rate increase (from 17 to 18 per cent) in October 1989, as part of a mild further t