Address by Professor T.T. Mboweni, Governor of the South African Reserve Bank, University of South Africa, Pretoria.  1. INTRODUCTIONLadies and Gentlemen, honoured guests. I wish to thank you for the honour you have bestowed on me by choosing me as the recipient of your award for Excellence in Managing the South African Financial Environment. In accepting this award and thanking you for extending it to me, I would like to make a few comments about the recent economic and financial developments in South Africa. I will touch on the recent price developments, the exchange rate, and developments in other emerging markets. 2. RECENT ECONOMIC DEVELOPMENTSTowards the end of 2000 the South African economy had not been seriously affected by the world economic downturn. But by the first quarter of this year, it became clearer that we would probably be adversely affected by the slowing activity in the major world economies.As we mentioned in our latest Quarterly Bulletin, published in June, the recorded decline in export volumes contributed to a slowing down in domestic growth from 3 per cent in the fourth quarter of last year to 2 per cent in the first quarter of this year. Although growth had already slowed from 4 per cent in the third quarter of 2000, the slowdown had largely been confined to the agricultural sector. But in the first quarter of this year, the weakness spread to other sectors of the economy. Of some worry is that the sector that bore the brunt of the slowdown was the manufacturing sector. The growth rate in this sector slowed from an annualised 4,5 per cent in the fourth quarter to a mere 1 per cent in the first quarter. This is somewhat puzzling because there appears to be strong demand for manufactured goods.Domestic demand remained strong in the first quarter with household and government consumption expenditure rising and growth in real fixed capital formation and inventory investment accelerating. The welcome acceleration in inventory levels followed a steep drop in net inventory investment from the third to fourth quarters of 2000. This suggests that producers are positive about South Africa’s future growth prospects and anticipate a sizeable increase in domestic demand. 3. PRICE DEVELOPMENTSInflation in the prices of consumer goods and services moderated meaningfully in the first half of 2001. The year-on-year rate of increase in the consumer price index for metropolitan and other urban areas excluding mortgage cost (CPIX) - the benchmark indicator for inflation-targeting purposes - has declined from 8,2 per cent in August 2000 to 6,4 per cent in July 2001. This rate of increase is only 0,4 percentage points above the upper limit of the inflation target range of between 3 and 6 per cent set for 2002. When measured from quarter to quarter and expressed at an annualised rate, the short-term pace of CPIX inflation has almost halved from 7,8 per cent in the first quarter of 2001 to 4,5 per cent in the second quarter."Headline" CPI inflation or the year-on-year rate of increase in the overall consumer price index for metropolitan areas slowed down from 7,8 per cent in February 2001 to 5,3 per cent in July.Increases in the prices of consumer services decelerated quite significantly. In the case of housing-related services, price increases moderated from a year-on-year rate of 8,1 per cent in February 2001 to 2,8 per cent in July. Housing-related services include mortgage rates, house rent and domestic workers' wages. Expressed at a seasonally adjusted and annualised rate, the rate of increase in the prices of all consumer services fell from 13,4 per cent in the first quarter of 2001 to only 4,2 per cent in the second quarter. Smaller increases in the prices of other services, apart from housing-related services, also contributed to the decline in the inflation in the prices of all consumer services.The year-on-year rate of increase in the prices of consumer goods fell back from 8,7 per cent in August 2000 to 5,2 per cent in July 2001. Declines in the price of food, which had risen steeply in 2000, helped to bri