Introduction I am pleased to be able to report on another successful year for the South African Reserve Bank. This applies to all facets of the activities of the Bank. Against the backdrop of a fastgrowing but uncertain international economy, we have been able to maintain and surpass our previous successes on the inflation front. The consolidation of inflation at low levels has enhanced macroeconomic stability and has contributed to the strong growth in the South African economy. A stable and well-regulated financial system is an important ingredient of sustained economic success. Financial sector stability has been maintained over the past year, and good progress has been made with preparations for the implementation of Basel II. Further highlights include modifications to the refinancing system of the Bank and the introduction of an upgraded series of banknotes and a new R5 coin. Another indicator of success has been the sustained capital inflows into the country which have allowed for the continued build-up of the official foreign reserves. This, in turn, has contributed to increased exchange rate stability. A significant milestone was reached when the rand was included in the Continuous Linked Settlement (CLS) system. The rand is now one of only 15 currencies settling through CLS. Although the primary focus of the Bank is on price stability and financial sector regulation, the Bank has to be an efficient organisation. Good progress has been made with respect to corporate governance. With a strong focus on staff development, important strides have been made in training and maintaining a pool of competent staff. During the 2004/05 financial year the balance sheet of the Bank increased by a significant margin, mainly as a result of the accumulation of foreign reserves. The income after taxation of the Bank improved somewhat during the year. This, however, was mainly the result of profits realised on the sale of government bonds, as the increase in foreign reserves is impacting negatively on the profitability of the Bank.