In light of the declining amount of liquidity in the banking sector, and the rising rate for Reserve Bank accommodation, banking institutions raised their prime lending rate from 18 per cent in April 1998 to over 25 per cent in August. With these adverse developments in the financial markets, the outlook for an early improvement in real economic activity faded.
On the contrary, overall economic activity slowed down further. In the third quarter, total real gross domestic product indeed showed an annualised rate of decline of 2½ per cent. It is estimated that, on balance, total gross domestic product in 1998 was not much different from that of 1997.