1. INTRODUCTIONIt should by now be well-known that the mission of the South African Reserve Bank is to achieve and maintain stable financial conditions in our country. This objective is spelled out in both the Constitution of the Republic and in the South African Reserve Bank Act. In these acts it is recognised that only by protecting the value of the currency can balanced and sustainable economic growth be achieved. It is believed in the Bank, and indeed in most countries of the world, that the potential for economic growth and creating job opportunities can only be fulfilled under stable financial conditions. By achieving this primary objective the Reserve Bank will make its contribution to sustainable higher economic growth in South Africa. Some economists and other commentators on monetary policy in South Africa seem to think that the Reserve Bank is applying an over-zealous monetary policy stance to achieve its primary objective of price stability. They argue that the Bank is obsessed with inflation at the expense of economic growth and job creation. At the current level of the inflation rate, this implies that an inflation rate of 8 per cent is too low to be treated as a serious concern. The Bank should therefore provide more liquidity to the money market, allow the interest rate on repurchase transactions to fall and in this way encourage the economy to grow more rapidly. In the Bank we believe that it would be a big mistake to shift the goal of monetary policy away from controlling inflation to promoting economic growth. 2. THE DETERMINANTS OF ECONOMIC GROWTHEconomic growth is basically determined by three factors, namely:(i) the quantity of capital and labour available in a country;(ii) the quality of capital and labour; and(iii) the ingenuity of people in combining the available production resources in the creation of goods and services. Output will rise if more production resources are put to work, or where a given supply of labour and capital is utilised more productively. Nowhere does the aggregate stock of money or the aggregate price level form part of the determinants of any production model for sustained long-term economic growth.Government policies, including monetary policy, affect the growth of domestic output to the extent that they affect the quantity and productivity of capital and labour. For example, government policies that restrict commercial activities for fear that these activities may cause undue environmental or ecological damage, raise the cost of doing business and make firms less productive. Obviously there may be good reasons to have such policies, but they can harm productive activity and economic growth. Monetary policy is only one element of overall macroeconomic policy, and can only affect the production process through its impact on interest rates. There are two main channels of monetary policy. One is through the effect that interest rate changes have on the exchange rate of a currency, and the other is through the effect that interest rate changes have on demand. Therefore monetary policy has an impact on economic activity and growth through the workings of foreign and domestic markets for goods and services.Economic growth involves the allocation of production factors to productive use and this allocation of resources takes place in markets. In a modern economic system, markets for goods and services, and for production factors, function more efficiently because of the existence of money as a medium of exchange. Without such a medium of exchange, barter trade would take place and most modern market arrangements would simply cease to exist. Money allows markets to allocate economic resources to sectors of economic activity in a highly efficient and cost-effective way. In a market economy, exchange values are expressed in terms of money prices which are determined by the forces of supply and demand. When a good or service is in short supply, or when demand increases relative to the supply of a good or service, the price will rise. This signals to suppliers that they must shift res