STATEMENT BY DR C.L. STALS, GOVERNOR OF THE SOUTH AFRICAN RESERVE BANK, 1995-02-20.PART I: SUMMARY OF MONETARY POLICY MEASURES The Reserve Bank regards it as essential that a more restrictive monetary policy shall now be pursued in order to prevent inflation from escalating in the period ahead. By implementing preventive measures against inflation now, the encouraging current economic expansion shall be supported and hopefully also extended over a longer period of time. The Bank has therefore decided to introduce the following changes to existing monetary policy measures: 1. A guideline range for an acceptable rate of growth in the M3 money supply from the fourth quarter of 1994 to the fourth quarter of 1995 has been set between limits of 6 to 10 per cent, compared with the limits of 6 to 9 per cent set for 1994, and an actual increase of 14,6 per cent in 1994. 2. The Bank rate, that is the rate at which the Reserve Bank provides accommodation to banking institutions against the collateral of Treasury bills, Government stock and Land Bank bills, all with an outstanding maturity of less than 92 days, will be increased as from tomorrow, 1995-02-21, from 13 to 14 per cent per annum. The rate on overnight loans extended against collateral of the same financial assets with outstanding maturities of 92 days and longer, but less than 3 years, will be raised from 14 to 15,5 per cent per annum. 3. Banks are at present required to hold a basic minimum cash reserve of 1 per cent of their total liabilities minus capital and reserves on deposit with the Reserve Bank and/or in the form of South African coin and bank notes, plus an additional interest-bearing reserve deposit with the Reserve Bank equal to 1 per cent of their short-term liabilities. As from 1995-03-21, the basic minimum reserve requirement will be increased from 1 per cent to 2 per cent of the defined total liabilities of each banking institution. The additional interest-bearing reserve deposit of 1 per cent of short-term liabilities will be retained.4. Each banking institution will be supplied with quantitative guidelines on the maximum amount of credit that it should extend to the private sector during the rest of this year to give effect to the monetary policy objectives of the authorities. These guidelines are not mandatory and an appeal is made on each banking institution to give its full support in the effort to contain inflation.A detailed motivation of these decisions is attached as Part II of this Statement. PART II: MOTIVATION FOR MONETARY POLICY MEASURES  1. Financial developments in 1994Against the background of the major socio-political changes introduced last year, the effects on the economy of pre-election uncertainties and post-election violence and industrial actions and the unsteady recovery in the overall economic situation, the Reserve Bank followed a mildly expansionary monetary policy in 1994.Although it became clear during the course of the year that actual growth in the money supply will exceed the guidelines of 6 to 9 per cent announced by the Reserve Bank at the beginning of last year as an acceptable rate of growth in the broadly defined money supply (M3), the Bank's actions remained fairly neutral in the financial markets during the major part of 1994. It was only towards the end of September that the Bank for the first time showed its hand by raising Bank rate from 12 to 13 per cent.The result of the rather lenient monetary policy was relatively rapid expansion in the two financial aggregates regarded by the Bank as important indicators of possible future trends in inflation: Over the twelve-month period from December 1993 to December 1994 the M3 money supply increased by 16 per cent. The average amount of the money supply in the fourth quarter of 1994 (the guideline target period) exceeded the average amount of M3 in the fourth quarter of 1993 by 14,6 per cent.Over the twelve month period from November 1993 to November 1994 (the latest information available), the total amount of bank credit extended to all borrowers in South Africa, that is