2014. as for the rand, it has recovered by about 20 % on a tradeweighted basis from the lows it had reached in early 2016. yet this relative stability is fragile, dependent on developments that may reverse in the not - too - distant future. the lack of a strong sell - off in either the rand or local bonds has more to do with a conjunction of favourable international factors than with investors downplaying the possible negative consequences of a downgrade. in particular, the factors referred to are the improvements in global economic developments, the absence of inflationary pressures in the advanced economies, and a stillaccommodative stance by the world ’ s major central banks. these factors have ensured that capital continues to flow to the emerging world, even to countries which have experienced a deterioration in their creditworthiness. but these flows could easily reverse. and amid tighter global financial conditions, investors would be more likely to differentiate between stronger and weaker sovereign credits. should south africa face another global shock, like it did during the 2008 - 09 global recession, its page 8 of 10 recent rating downgrades could well make it more vulnerable to that shock. admittedly, some commentators claim that further downgrades to south africa ’ s sovereign ratings would not starve the country of foreign capital, as other investors – specifically, funds of a more speculative nature – would still buy domestic financial assets. however, apart from the fact that these investors would require a higher return on south african assets than recent historical norms, their investments would be more short - term in nature, most likely resulting in a higher volatility of market prices. this, in turn, would increase the climate of uncertainty facing domestic businesses, with negative consequences for fixed investment, job creation, and therefore poverty and inequality. in conclusion, let me say that a sovereign rating is not a policy goal per se. rather, it is a reflection of a broad range of economic, social, and political factors that constitute the creditworthiness of a country. key among these factors is the strength of our institutions, including the chapter 9 institutions, the judiciary, and the south african reserve bank. these institutions underpin our democracy and our creditworthiness. it is this creditworthiness that policymakers should strive to improve, for goals that include development and poverty reduction. as international experience shows, it is failure to generate sufficient economic growth and to maintain healthy fiscal and external balances that keeps large portions of a country ’ s population in

an address by daniel mminele, deputy governor of the south african reserve bank, at the sixth bank of america merrill lynch annual summer macro investor conference johannesburg 24 november 2017 macroeconomic policy and financial risks – from 2017 into 2018 introduction ladies and gentlemen, good morning. thank you for the invitation to deliver the keynote address at this sixth bank of america merrill lynch annual summer macro investor conference. the end of the year is upon us. no later than yesterday did the south african reserve bank ( sarb ) conclude its last monetary policy committee ( mpc ) meeting for the year. it is around this time when many analysts and forecasters publish their respective outlooks for the year ahead, complete with „ baseline scenarios [UNK] and a list of the major risks thereto. but to what extent will these risks differ from those that most of us flagged as the biggest threats 12 months ago? does the way in which economic agents and policymakers responded to those threats hold lessons for the future? or do we face as many uncertainties now as we did last year? as american author david levithan once said : “ the mistake is thinking that there can be an antidote to the uncertainty. ” we have to strive to achieve the best we can under the circumstances. page 1 of 12 in trying to tackle the questions i have just posed, i will look back at some of the global risks which both official and private forecasters highlighted at the turn of 2017, to try and gauge the extent to which these risks materialised, if at all. i will also consider whether any new risks are emerging as we approach start of 2018, which may deserve our attention in the year ahead. i will then zoom in on south africa [UNK] s situation, analysing how much the global environment has influenced domestic developments over the past year and, equally, how new global uncertainties may combine with local issues to influence monetary policy over the coming year. at the end, i will also briefly touch on yesterday [UNK] s monetary policy decision, assuming however, that most of you would have seen our statement. what investors feared most in early 2017 there was a general feeling of economic optimism, albeit a prudent one, at the start of 2017. for example, in its world economic outlook update published in january, the international monetary fund ( imf ) wrote that „ in [ the ] advanced economies, a modest and uneven recovery [ was ] expected to continue, with a gradual further narrowing of output gaps [UNK]. yet, in