several years, at least judging by the level of real short - term interest rates, which remains unusually low. furthermore, the impact of such accommodation has not been felt as much as previous cycles would have suggested. in addition to the absence of demand pressures, the relatively subdued growth in money and credit extension, and the lack of significant gains in property prices over the past few years, suggest a lack of appetite among private agents for new borrowing. most probably, the elevated degree of households ’ leveraging at the time of the recession has acted as a constraint on their willingness and ability to respond to the sharp decline in interest rates. it is also noticeable that non - resident capital inflows into south africa have not, in recent years, fed into the kind of fast domestic credit expansion that one saw in several asian or latin american economies. the south african reserve bank ’ s policy response i have already emphasised that the sarb does not target the exchange rate. amid weaker economic growth, and with the currency depreciating for many reasons, several of which are independent of our domestic environment, raising interest rates aggressively in an attempt to prevent currency depreciation could quickly become a futile, if not counter - productive approach. the imf recently highlighted in its latest issue of the world economic outlook that bis central bankers ’ speeches currency depreciation can play a welcome role as an absorber of shocks, including terms of trade shocks. this is the case, of course, as long as the depreciation does not spill over into lasting and more broad - based price pressures, or threaten the stability of a country ’ s financial system. the risk of price pressures is where the main focus lies for the sarb. admittedly, financial stability is also an integral part of our mandate and focus. but at present, the latest rand depreciation does not pose immediate threats to financial stability. due to prudent financial management by both the public and private sectors, south africa ’ s foreign currencydenominated external debt represented less than 20 per cent of gdp as of the second quarter of 2015, even though it has risen in recent years. 4 it is true that foreign debt issuance by south africa ’ s corporate sector has increased quite significantly in recent years. however, it has not reached the levels seen in some other emerging countries, particularly in asia. furthermore, the banking sector ’ s foreign assets and liabilities remain relatively low, at 14 and 10 per cent of the banks ’ total

francois groepe : the challenges for domestic monetary policy amid us policy normalisation address by mr francois groepe, deputy governor of the south african reserve bank, at the bank of america - merrill lynch investor conference, johannesburg, 27 november 2015. * * * introduction ladies and gentlemen, good morning. i am grateful to the bank of america - merrill lynch for the invitation to address this fourth edition of their annual fixed income investor conference. i think that the subject of my speech is a matter that is widely debated. in my address today i will highlight the different channels through which united states ( us ) monetary policy shifts can affect south africa ’ s economic, price and financial variables, and how this is likely to impact on domestic monetary policy. the global rate environment may be changing there is no denying the impact that the prolonged period of near - zero us short - term interest rates has had on global economies and financial markets. the target for the federal funds rate has now been at zero to a quarter of a per cent for as long as seven years. since the end of the second world war, episodes of low us interest rates had not seen rates fall so low for such a long period. furthermore, the policy response to the fed was not limited to a near - zero fed funds target : sizeable purchases of government and agency debt by the central bank, together with “ forward guidance ” regarding the future path of interest rates, were implemented with the stated aim of lowering interest rates across the whole yield curve. these unconventional policy tools were also not limited to the us. over time, central banks in the eurozone, japan and the united kingdom, among others, moved to a combination of very low policy rates and asset purchases. the extent to which these measures reduced long - term interest rates in advanced economies and encouraged capital flows towards emerging markets remains a point of debate. other factors no doubt were at work. these include moderating inflation and slower potential growth in the developed world and, in the immediate years after the global financial crisis, more attractive fundamentals in emerging countries. nonetheless, various academic studies suggest that unconventional tools, via their effect on term premiums, may have depressed 10 - year us yields by as much as 50 to 100 basis points. 1 as for capital flows to emerging markets, it may be no surprise that the era of very accommodative policy in the developed world coincided ( according to data of the institute of international finance ) with inflows in excess of us