and downside growth risks. bis central bankers ’ speeches apart from international factors, growth risks stem from relatively weak business and consumer confidence, which have impacted on private sector real gross fixed capital formation, and have also moderated household consumption expenditure, the latter also being constrained by subdued employment growth, and higher costs for electricity and fuel, and relatively high debt levels. an additional risk would be possible disruptions from strike action as part of the current wage negotiations in various sectors. recent data releases and base effects suggest a better performance in the second quarter of 2013 when compared to the growth rate of 0. 9 % in first quarter, but much will depend on the performance in the subsequent quarters to improve an outlook that currently exhibits downside risks. risks to the inflation outlook present themselves mainly through a more depreciated exchange rate of the rand, especially if such depreciation occurs very rapidly and is sustained, and possible inflationary pressures arising from excessively high wage settlements, and from higher food prices. demand driven pressures continue to be relatively low, and the pass through from the exchange rate depreciation at this stage appears somewhat weaker than observed previously during periods of exchange rate depreciation. as regards the exchange rate, the fact that south africa has a current account deficit and is reliant on portfolio flows has meant that the impact of global risk aversion has been somewhat more severe on south africa than other emerging market countries, coupled with the fact that our markets tend to be more liquid and deeper than other emerging markets. however, while depreciation in the rand exchange rate poses inflationary threats, it could also improve south africa ’ s outlook if it results in greater competitiveness of south africa ’ s exports and an improvement in the terms of trade and current account deficit. this presupposes that the benefits arising from and exchange depreciation can be locked - in and such weakness does not translate into higher wages not matched by productivity gains, and thus higher inflation. for now, the bank deemed it prudent to keep policy unchanged, but depending on unfolding events in the global and domestic environment, the bank stands ready, as always, to act in whichever manner is deemed prudent, in line with its mandate, to ensure that inflation does not breach the upper end of the inflation band on a sustained basis, and results in a deterioration of inflation expectations. let me finish by wishing you all the very best as you try to navigate these very difficult times. these are

daniel mminele : global liquidity, monetary policy and communication address by mr daniel mminele, deputy governor of the south african reserve bank, at the 2013 pictet annual global outlook, johannesburg, 12 august 2013. * 1. * * introduction good evening ladies and gentlemen. thank you to pictet for inviting me to speak at this year ’ s annual global outlook, which is taking place against the background of an environment that continues to be uncertain. i was requested to speak about the “ outlook for the sa economy ” as your programme suggests. i have taken a bit of liberty, and hope i will be forgiven, as a lot has already been said on this matter in the last couple of weeks by my colleagues in various speeches, and the monetary policy committee ( mpc ) meeting took place less than a month ago – so i shall only briefly touch on this towards the end of my remarks. i thought that i should discuss some topical issues relating to global liquidity, monetary policy and communication. the title of the speech we just heard – “ the end of cheap dollars ” – is certainly a very apt description of what the financial markets across the globe have been seized with over the past few months. “ cheap dollars ” have become a feature of financial markets since the onset of the global financial crisis. although the “ greenspan put ” initially became the “ bernanke call ” at the start of the global crisis, this was quickly transformed into a “ bernanke put ” as quantitative easing gained traction. in addition to quantitative easing, the concept of forward guidance, whilst not completely new, gained increasing traction albeit in different forms. across the developed world, forward guidance was used by policymakers to inject additional stimulus as interest rates reached the lower bound. such actions signalled a change in the reaction function of central banks – that is, to keep rates low for longer. last year, the fed for the first time employed the practice of numerical thresholds as guidance to markets about the possible future path of monetary policy, the issue having featured prominently in deliberations at the annual jackson hole conference a month earlier. boe governor mark carney just last week for the first time linked the monetary policy outlook in the uk to an unemployment threshold and pledged to expand stimulus if needed. ecb president draghi ’ s pledge to “ do whatever it takes ” within the mandate of the ecb was yet another form of forward guidance. in japan, prime minister shinzo abe introduced an