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Governor’s foreword It gives me great pleasure to present the Annual Report of the South African Reserve Bank (the Bank) for the financial year ended 31 March 2008 to the shareholders and other stakeholders of the Bank. This Annual Report provides an overview of the operations of the Bank and an explanation of monetary policy, and includes a comprehensive economic report, which was published as a separate Annual Economic Report in previous years. This marks the first year in which the Bank presents to shareholders and stakeholders one comprehensive report on its activities and on economic developments. Through the publication of its Annual Report, the Bank draws attention to its responsibilities and activities in the domestic economy and in the international arena. Although the conduct of monetary policy aimed at achieving the inflation target remains the overriding institutional objective, the Bank also has numerous other important responsibilities. These include the production of notes and coin; oversight of the national payment system; bank supervision; and the management of gold and foreign-exchangereserves. The discharge of these responsibilities is highlighted in this report for the benefit of shareholders and stakeholders. The primary objective of the Bank is the achievement and maintenance of price stability, which is embodied in its inflation-targeting monetary policy framework. In terms of this framework, the South African Government has entrusted to the Bank the goal of keeping CPIX inflation (year-on-year increase in the consumer price index excluding mortgage interest cost for metropolitan and other urban areas) between 3 and 6 per cent. The review period was again characterised by satisfactory domestic economic growth, but the inflation pressures recognised by the Bank some two years ago continued unabated. As early as the middle of 2006 the Bank noticed the possibility of CPIX inflation moving outside the target range and on 8 June 2006 increased the repurchase rate by 50 basis points from 7 to 7,5 per cent. This was subsequently followed by further increases of a similar magnitude, as a result of continued inflationary pressures. These increases brought the repurchase rate to 11,0 per cent at the end of the financial year under review, to 11,5 per cent after the rate increase announced on 11 April 2008 and to 12 per cent following a further announcement on 12 June 2008. These increases reconfirm our commitment to containing inflation. The near-term expectations for domestic inflation remain somewhat discouraging, as the acceleration in CPIX inflation is caused, in the main, by rising commodity and food prices. The international crude oil price increased considerably during the period under review, pushing retail petroleum and diesel prices to record levels in nominal and real terms. Linked to the level of crude oil prices is an increased demand for biofuels sourced from agricultural commodities. This increased demand for agricultural produce at a time when adverse weather conditions in major production areas contributed to contained food supply resulted in local and international acceleration in food price inflation. The Bank will continue to assess the level and trend of CPIX inflation in the months ahead. In the execution of its mandate to contain inflation, the Bank will consider the necessary steps to bring CPIX inflation to within the target range over a reasonable period. This is the main contribution that the Bank can make towards sustained economic growth in South Africa. TT MboweniSeptember 2008