daniel mminele : the role of monetary policy in encouraging and supporting economic growth address by mr daniel mminele, deputy governor of the south african reserve bank, at the university of kwazulu - natal business management conference “ innovative and creative solutions for economic growth strategies and sustainable futures ”, durban, 26 august 2016. * * * good morning, ladies and gentlemen i thank the university of kwazulu - natal, for inviting me to speak at this 4th business management conference. the theme of this conference is well - chosen and very relevant to our current context as, eight years after the global financial crisis, strong, sustainable and balanced growth remains elusive, and policymakers across the world, including in south africa, are indeed grappling with finding innovative and creative solutions for generating growth. south african gdp 1 growth has been decelerating since 2011, registering a mere 1, 3 per cent in 2015 following a similarly disappointing growth rate of 1, 6 per cent in 2014. this is a far cry from the growth rates of almost 6 per cent that we celebrated prior to the global financial crisis. a number of domestic and external factors have been responsible, including electricity supply constraints and one of the most severe droughts to affect the agricultural sector, the slowdown in china and lower commodity prices ( adversely affecting mining and manufacturing production ), as well as weak demand in both advanced and emerging market countries, including those in sub - saharan africa. according to the most recent forecasts of the south african reserve bank, released at the time of the monetary policy committee ( mpc ) meeting in july, growth prospects remain challenging, with the economy not expected to grow in 2016 and growth rising to 1, 1 per cent next year and to 1, 5 per cent in 2018. by contrast, our forecasts show inflation remaining above the target range in 2016, averaging 6, 6 per cent this year before declining to 6 per cent and 5, 5 per cent over the next two years respectively. in my remarks today, i will discuss the role of monetary policy in encouraging and supporting economic growth – a role complicated by the current context of structurally low growth. in an environment characterised by such weak expansion, there are two obvious questions for monetary policymakers. first, why is the mpc not doing more to support growth? second, what is the long - term role of monetary policy in encouraging and supporting sustainable growth? monetary policy and short - term growth since january 2014, the mpc has increased the

is over - valued tends to be an important deterrent to the inflow of capital. the nominal trade - weighted value of the rand has declined by 28 % from 1995 to 1999, or on average by about 7 % per year. this depreciation exceeded the inflation differential between south africa and its main trading partners and competitive countries. in real terms, the average weighted value of the rand has therefore declined by about 15 % over the past four years. a part of these adjustments in the real value of the rand reflected a worsening in the south african terms of trade and reduced import protection and export subsidisation. in september 1994 the import surcharge was lifted, from 1995 exchange controls were relaxed, in mid - 1996 the government ’ s commitment to stepwise tariff reductions was announced and in july 1997 the general export incentive scheme was abolished. taking these developments into consideration, as well as the continued good performance of manufactured exports, it can still be concluded that the rand is competitively priced and should not really be prone to a sharp correction on a trade - weighted basis. this conclusion is also confirmed by south africa ’ s healthy overall balance of payments position. the deficit on the current account of the balance of payments amounted to a low of ½ % of gross domestic product in 1999. moreover, trade figures for the first quarter of 2000 indicate that the current account deficit has probably improved somewhat in the first quarter of 2000. despite the substantial increase in international oil prices and a recovery in the domestic economy, the current account deficit has therefore been maintained at low levels. this was mainly due to a strong export performance. the favourable growth prospects for the world economy suggest that the demand for south african exports should remain buoyant. in addition to the low current account deficit, south africa is attracting considerable funds from other countries. in 1999 the net inflow of capital in south africa exceeded r27 billion and direct investments of non - residents came to r8. 4 billion. preliminary information for the first quarter of 2000 indicate that non - residents ’ net sales on the bond exchange were more than offset by other capital inflows and that a further net inflow of capital was recorded. this is substantiated by an increase in the gross foreign reserves of the reserve bank of nearly r5 billion from the end of 1999 to the end of april 2000 and a considerable decline in the foreign loan commitments of the reserve bank. the underlying soundness of the south african economy is confirmed by many other developments