The only mitigating argument for a cut in interest rates was a slowdown in credit demand. Credit extension to the private sector rose by a yearly 14.78% against 16.39% in June.

This could still prove significant though. Stals has stated his objective of reigning in rampant credit demand before he considers cutting the Bank rate.

Economists remain hopeful that if credit figures remained subdued in August Stals might be persuaded to ease monetary policy.

If Stals was harbouring any dovish notions, he did not reveal them at the AGM. "We remain concerned about the high level of credit extension, and have to continue to follow a conservative monetary policy."

He presented a fairly optimistic view of the economy, but warned against complacency and the need to continue with tight fiscal and monetary control.

"The monetary authorities must persist with their vigil against the threat of financial instability that can only lead to long-term stagflation."

In his defence of high interest rates Stals received some useful ammunition from the International Monetary Fund, which had earlier in the week cautioned the country against "a hasty reduction in interest rates".

The IMF's annual report on SA expressed concern over inflationary pressure which, it said, had become evident through the high level of money growth in the economy.

The IMF warned against heavy intervention in the foreign exchange market to shore up the rand and instead urged SA to carry out tough economic reforms.

The IMF argued that heavy purchases of the rand created confusion in the foreign exchange market and left the central bank open to the risk of big trading losses.

Stals stressed, however, that he would not be pressurised into short-term adjustments to please the IMF, local business or any other groups.

"The Reserve Bank is not prepared to consider any short-term expediencies and implement monetary policies that will in the long term lead to serious disruption of financial stability," he said.

His stance was attacked by a number of economists. One of his fiercest critics, the Board of Executors' Rob Lee, warned that the first rate cut was likely to occur only at the end of 1997. "Economic growth in 1997 and 1998 will be weak - average living standards will fall in both years," he said.

In his address, Stals also announced the introduction of a repurchase rate to facilitate more flexible transactions, allowing commercial banks to tender regularly for central bank funds.

Stals said the Bank would ask for comments on its proposal of regular repo transactions between the Reserve Bank and private banks. The new system was expected to come into being along with the upgraded electronic National Payment System in March 1998.

The new proposals would lead to more flexible interest rates "as the market would react more sensitively to underlying conditions, and would emit clearer signals to the authorities".

Stals cautiously avoided reference to the Basic Conditions of Employment Bill after his views expressed in the June Quarterly Bulletin landed him in hot water with trade unions.

He also disclosed that the Bank had reduced its net foreign currency open position to $16.8-billion in June 1997 compared with $22.2-billion at the end of 1996.

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