Introduction The South African Reserve Bank achieved considerable success on many fronts under difficult economic conditions during the past year. In the monetary field, prompt action during 2002 helped to restrain inflationary expectations as well as to maintain international confidence in the country's commitment to responsible macroeconomic policies. The strength of international confidence is reflected in the recovery in the rand's international value, which was a major factor in reining back inflationary pressures. In the process, the oversold net open foreign reserve position (NOFP) was finally expunged in May 2003. Against this background, it has been possible to lower interest rates in recent months. Price stability, on the basis of permanent low inflation, is an essential precondition for the economy to be able to achieve sustainable potential growth rates and thereby deliver lasting improvements in living standards for all sectors of our society. The Bank therefore remains dedicated to its task of keeping inflation within the target range, and will continue to be ready to take prompt action whenever necessary to that end. In the banking sector, financial stability has been restored after the serious liquidity problems experienced in the first half of 2002. The banking sector remains soundly capitalised and well managed, and significant progress has been made in the further application of international best practices in banking supervision. The highly-developed structure and international competitiveness of the country's financial system as a whole remains a significant national strength. In the administration of the Bank, costs were reduced significantly and in a number of instances departments were restructured, streamlined and staff numbers reduced.