South African Reserve Bank governor Tito Mboweni said on Thursday morning that South Africa was very much part of the global village and was heavily influenced by international economic developments, but added that many of these developments had resulted in increased uncertainty and risk.
“The emergence of China as an economic powerhouse means that the world is a different place to what it was just a decade ago. Most parts of the world have also been experiencing a period of robust world growth, but while it may be true that every cloud has a silver lining, sometimes a silver lining may have a cloud,” said Mboweni.
He said that in some respects this held true for the current world growth performance.
“Some of the current uncertainties relate to the issues of global imbalances, asset price movements, oil prices and tighter conditions in financial markets. These issues add to the uncertainty within which monetary policy has to be conducted,” said Mbwoweni.
Mboweni said monetary policy had to be formulated against the backdrop of increasingly integrated goods and financial markets.
“This increases the uncertainty surrounding the workings of the monetary transmission mechanism. Monetary policy making becomes more complicated since the nature and extent of influence of exogenous shocks on the domestic economy is difficult to determine in advance,” he explained.
“With highly integrated money and capital markets, changes in sentiment, whether justified or not, can have profound implications for our economy. Similarly, changes in growth prospects in the industrialised countries or emerging Asian economies will also affect us. The exact nature and timing of these developments are always uncertain,” he pointed out.
“As is often said in monetary policy circles, the only certainty is uncertainty. This is highly applicable to the uncertain impact of international developments on domestic monetary policy,” he concluded. ‒ I-Net Bridge