have embarked on further policy easing, exacerbating the so - called monetary policy divergence. in the early part of this year, the european central bank ( ecb ) announced their long awaited qe programme of approximately eur1, 1 trillion, while the dovish stance at last week ’ s policy meeting reinforced expectations for further easing. in japan, the recent economic contraction and renewed deflation fears fuelled speculation that the bank of japan ( boj ) could announce more qe. in addition, various central banks in aes reduced their policy rates in 2015, for example canada, australia ( both by 50 bps ), new zealand ( 75 bps ) while sweden and switzerland moved further into the territory of negative interest rates. china also started easing monetary policy since november 2014, reducing their benchmark policy rates on six occasions and the reserve requirement ratio four times. the latest easing by china happened as recently as last week, reflecting the chinese authorities ’ concern about future bis central bankers ’ speeches growth expectations and the overall health of the economy. surprisingly, this resulted in broad em weakness with losses being registered on both equity and currency markets. perhaps this reaction is a reflection of increased risks to the chinese economic outlook. the gfc set the tone for monetary policy implementation and liquidity provision to significantly influence balance sheet dynamics in aes ( and in order to restore dysfunctional interbank markets ). in emes, however, this phenomenon was less apparent, with only the pboc active in this regard. this was because, as em central banks did not face the “ zero lower bound ” constraint, they could still use traditional policy tools ( such as policy rates ) to respond to external shocks. in addition, many em countries recovered more quickly from the gfc than their ae counterparts, further reducing the need for exceptional policy measures. nonetheless, the expansion of the balance sheets of major central banks has not been without effect on emerging markets, and has at times complicated the task of the latter ’ s central banks. ample global liquidity triggered capital flows into em countries, in many cases encouraging public and private leveraging and fuelling credit growth. such developments would typically prompt a policy response in the form of higher interest rates. however, with interest rates differentials with aes a key driver of portfolio flows and currency appreciation, some em central banks found themselves facing increasingly complex challenges. despite the current delay in the fed ’ s expected monetary policy normalisation path, the fed and the bank

the eurozone and japan, as well as capital outflows from china, could result in greater investments into em from these regions, counter - balancing to some extent the impact of us tightening. in summary, recent experience makes it quite clear that changes in aes ’ monetary policies have been a key driver of developments and sentiment towards emes and market volatility, as the years of low interest rates and unconventional monetary policy have seen increased international exposures to emes. conclusion in conclusion, it would appear that policy challenges and, specifically, the “ divergence ” between the major central banks will continue to have major bearings on emerging economies in the foreseeable future. market strains have eased over the past few weeks, in part because of growing indications that the federal reserve would take the risk of a further deterioration in financial conditions in consideration before any policy decision. nonetheless, the consensus view remains that while lift - off has been delayed, it will still happen in the not - too - distant future ; and its impact on global portfolio flows and em assets remain highly uncertain. so does the impact on the world economy and global financial markets from current or potential stimulus in the eurozone, japan and china. against, this background, it is clear that central banks cannot afford to be complacent, as the risks related to global monetary policy and macroeconomic developments remain high given the globalised nature of the world economy. this is unchartered territory, and the risks of further market turbulence are tilted to the upside. in light of possible implications for financial stability and resilience, and for domestic price developments, central banks – and the south african reserve bank among them – will have to exert continued and utmost vigilance. thank you. bis central bankers ’ speeches