The Governor of the South African Reserve Bank, Tito Mboweni, said on Friday that while credit problems in the United States have given the global imbalance issue some impetus, South Africa also has its own imbalance with the current-account deficit at about 6% of GDP.
He pointed out that a deficit as high as South Africa’s would be considered very large in terms of some developed barometers.
Mboweni was speaking at the Centre for Economic Policy Research’s 11th annual conference.
“The global imbalance issue has been given some impetus because of the problems in the US. But it is not only the US — in South Africa we also have our own imbalance with the current-account deficit at around 6% of GDP,” said Mboweni.
He added that some Asian countries are, meanwhile, running surpluses and others are accumulating reserves.
“It is something we have to try and do something about,” said Mboweni.
He added that the issue of carry trade also needs to be looked at to see how it is potentially increasing imbalances.
The carry trade refers to the current practice of borrowing in low interest-rate environments, like Japan, and investing in high interest-rate environments, like South Africa.
Mboweni added that South Africa also has the situation of exposure to foreign investor flows. He noted, however, that the country’s reserves have been increasing.
He said globalisation has created some lag in terms of changes in asset prices relative to changes in monetary policy.
“It is becoming uncertain — for example, exchange rates should strengthen when rates are increased, but the South African experience of late has shown that the opposite is likely to happen. This is very interesting and puzzling,” he said.
“On other occasions, where we have reduced interest rates, exchange rates have strengthened,” said Mboweni.
He concluded that emerging markets are very vulnerable to contagion from time to time — “we have experienced it this year on many occasions”. — I-Net Bridge