##ncies have stabilised, even though they remain much weaker than pre - crisis levels. south africa is no exception : the south african rand is currently trading at about r17. 00 / us $, weaker than the january 2020 average of r14. 40 / us $ but much improved from early april lows of r19. 00 / us $. shorter - dated government bond yields are now trading lower than at the start of 2020, though yields on longer - dated bonds are higher, probably reflecting higher credit risk and debt issuance. 4. interest rates are likely to stay low over the next two years the economic shock from covid - 19, however, will probably take longer to subside than its financial counterpart, despite the combination of fiscal and monetary support provided. global activity has rebounded from the lows of april ( when most of the world faced a strict lockdown ), as restrictions on economic activity and people ’ s mobility have been lifted. but activity indicators are still significantly below pre - crisis levels, and as activity gradually converges towards ‘ normal ’ levels, the pace of convergence slows. some commentators argue that the harder part of the economic normalisation begins now. in most countries, private and official institutions, on balance, do not project a return of real gdp to pre - covid - 19 levels until late - 2021 or even late - 2022. negative output gaps are expected to be the norm. with respect to unemployment, the consensus view is that normalisation will take even longer. south africa has been gradually lifting restrictions on economic activity since late april ; both fiscal and monetary policies were eased significantly to help facilitate the economic recovery. on the monetary front, the sarb ’ s mpc lowered the repo rate by a cumulative 275 basis points between march and july ; the bulk of the reduction ( 250 basis points ) occurred between the march and may meetings − a fast response by the standards of large emerging markets. to facilitate the flow of credit to cashconstrained businesses and individuals, the sarb injected liquidity in money markets through larger and more frequent repo operations. it also temporarily relaxed some regulatory capital requirements for banks. finally, the sarb purchased government bonds in the secondary market to ensure liquidity and the smooth functioning of the bond market. nonetheless, the plunge in second - quarter economic activity, when real gdp fell at an annualised rate of 51 %, could not be reversed. base effects, admittedly, will result in spectacular growth

burden of slow policy responses to a widening interest differential and currency weakness. the real economy effects of being behind the curve with short rates will be relatively small in the near term, but working against the longer term direction i think we want to go. lower short rates might generate somewhat more near term consumption growth for less investment growth in the longer - run. but this is a poor trade - off for us to make and one we cannot exploit. with rising inflation, more policy accommodation would significantly increase the risk of a sell - off of rand assets and pre - emptively push market interest rates across the yield curve higher than they should be given our fundamentals. economic growth certainly our growth and employment outcomes have been poor. after 3. 0 % growth in 2011 and 2. 5 % in 2012, the outcome for 2013 was desultory and 2014 is proving as bad. protracted strikes have had serious economic consequences ; the platinum strike is estimated to have directly and indirectly reduced annualised quarterly gdp growth by 1. 6 percentage points. up to 2011, south africa has benefited from a sustained positive demand shock caused by a rising terms of trade. as china ’ s economy has cooled, the deflating commodity price bubble has generated a significant negative demand shock as the terms of trade declined by 6. 7 % since 2011 ( and 9. 4 % since q4 2010 ). but can we say this has much to do with monetary policy settings? our real interest rates have averaged around – 0. 5 % since 2009, reflecting accommodative monetary conditions. meanwhile, household spending has slowed amid 7 greater emphasis on working down household debt levels. lower nominal interest rates have increased cash flow to households and this is going in part to debt service and debt reduction rather than consumption and taking on new debt. this makes sense – future expected real growth in income is low relative to future potential interest payments on new debt. improving household balance sheets will create space for future consumption growth. 8 but there are limits here too – low rates don ’ t the ecb is expected to auction nearly €400 billion in 2014, with €174 billion in september and €167 billion in october. an asset backed securities purchase programme will be articulated in october. with expected repayments, the 1 trillion euros will end up resulting in roughly a 600 to 650 billion euro rise in ecb assets. the rules of the purchases suggest that this will help to lock in low rates until some time in 2016. hce grew