these results. policy approach will result in inflation readings being back within the target range on a sustainable basis from the second quarter of this year. this should be a clear manifestation of the flexible approach followed by the bank, which reflects its awareness of the impact of monetary policy on economic growth and the forward looking approach of inflation targeting. 5. the role of exchange rates in monetary policy before i conclude i would like to touch on our exchange rate policy as an integral part of monetary policy. the level of the exchange rate has elicited comments from diverse stakeholders, and there have been calls for a more activist approach towards its management by the bank. allow me to reiterate and clarify our views in this regard. the south african reserve bank remains committed to a flexible exchange rate regime and is of the view that the exchange rate of the rand should be determined by the market. the floating exchange rate regime helped to cushion south africa from more severe effects of the recent global financial crisis. however, the commitment to a flexible exchange rate should not be misconstrued to suggest that we are indifferent as far as the level of the exchange rate is concerned. the level of the exchange rate is a very important factor in the inflation process and gets taken into account when considering policy within the framework i have just described. its possible impact on the potential future path of inflation very much forms part of our considerations. our current involvement in the foreign exchange market is mainly for the purpose of reserve accumulation and domestic liquidity management. as stated previously, our participation in the foreign exchange market is also informed by volatility conditions, the liquidity situation in the market and cost considerations. as regards the level of the exchange rate and competitiveness, while it is acknowledged that certain sectors of our economy have been affected by what may be perceived to be a relatively strong exchange rate, it is crucial to highlight the importance of inflation management in this regard. if the nominal exchange rate were to depreciate without inflation being controlled at the same time, there would be no improvement in the level of competitiveness. so the real exchange rate is more important. any consideration for more active participation in the foreign exchange markets would also have to be carefully assessed against, among others, the prospects of success given the factors that may be driving the exchange rate in any particular direction at any given point in time. 6. conclusion having initially under - estimated the interconnectedness of financial markets, and how powerful a role this interconnectedness would play to

lesetja kganyago : overview of the south african economy address by mr lesetja kganyago, governor of the south african reserve bank, at the 96th annual ordinary general meeting of shareholders, pretoria, 29 july 2016. * 1. * * governor ’ s address the past year has again been a challenging one for the bank against the backdrop of a hesitant recovery in the global economy and a slowing domestic economy. while the recent decision by the uk to leave the european union ( brexit ) has raised the risks to the outlook, the extent of the spillover effects are still unclear. much will depend on the speed and terms of the disengagement. at this stage we do not know which of a number of possible scenarios will unfold. the financial markets have stabilised following the initial volatile response to the decision. however, it is likely that growth in the uk, and to a lesser extent in the eu, will be negatively affected, as a protracted period of uncertainty is expected to undermine both business and consumer confidence. as a consequence, growth forecasts have already been revised down. this comes at a time when the eurozone growth prospects, although still muted, had improved steadily during the past year, partly in response to european central bank monetary stimulus. the us economic recovery appeared to be more sustained during the past year with consistent improvements in the labour market. this was despite a slowdown in the first quarter, which was viewed as temporary. the performance of the economy improved since then, but some negative spillovers from brexit are expected. despite sustained fiscal and monetary stimulus in japan, economic growth was marginally positive. while the past year was slightly more favourable for advanced economies, the same cannot be said for emerging markets, although there were divergent experiences. the growth slowdown in china continued, accompanied by increased volatility in domestic financial markets. this was partly in response to policy changes and persistent concerns regarding the stability of the financial sector. the slower growth continued to impact negatively on commodity prices, further complicating the outlook for commodity - producing emerging markets. more recently, the economy appears to have responded to renewed stimulus measures, and risks of a hard landing have abated. this has also helped to stabilise commodity prices. both brazil and russia slid into recession during this period and continue to contract. by contrast, india experienced high growth following a number of structural reforms. the slowdown in sub - saharan africa, in response