is also dependent on the growth outlook in asia in general and china in particular. global growth has implications for our own monetary policy through a number of channels. higher global growth may, in the absence of productivity growth, result in either higher world inflation or tighter monetary policies in high growth economies. at the same time, strong world growth is generally positive for commodity prices, which may cause the rand to be stronger. often the implications of world growth developments for monetary policy are far from clear, and this underlines the uncertainties we face. 3. global imbalances although the world economy may have achieved a degree of immunity from cyclical downturns in the united states, it is probably still true to say that if the us had to catch a cold, the rest of the world would run the risk of catching a bad case of flu. the possible disorderly unwinding of global imbalances is a case in point. the main manifestations of the global imbalances are the current account deficit in the united states and the current account surpluses in a number of asian economies and the oil exporting economies. the dominant view in the market appears to be that it is not a question of if, but rather when and how the adjustment will take place. as i noted earlier, the imf view is that although there is a risk of a disorderly adjustment, a smooth market - led adjustment is the most likely outcome. by contrast, in the 2005 annual report of the bank for international settlements it was noted that the unwinding of the imbalances could be uncomfortable, either through profound market turbulence or a protracted period of slow world growth. a number of solutions to the problem of global imbalances have been proposed. in his keynote address to the recent conference on macroeconomic challenges that was organised by the bank, professor david llewellyn argued that none of the proposed solutions would be sufficient on their own, and that unless a number of solutions were implemented concurrently, a negative outcome was more likely. in his view, the required adjustment includes increased savings in the us including a reduction in the fiscal deficit ; reduced savings in china, combined with improved social security safety nets in that country ; a move away from the dollar peg by asian economies and a depreciation of the us dollar ; and a rise in aggregate demand in japan and the euro area, accompanied by structural reform in the latter. unfortunately there does not appear to be a co - ordinating mechanism to

t t mboweni : monetary policy decision making in an uncertain international economic environment address by mr t t mboweni, governor of the south african reserve bank, at a business breakfast organised by the graduate school of business, university of kwazulu - natal, durban, 2 november 2006. * * * honoured guests ladies and gentlemen 1. introduction thank you for the opportunity to address you in kwazulu - natal. i should note that my presence here is due to the persistence of dr singh who has been berating me for some time for neglecting your province. it is indeed true that it has been some time since i have made a public address in kwazulunatal but i can assure you that this has not been by design. my address today relates to recent international economic developments and how they impact on our own monetary policy decision making. south africa is very much part of the global village and as such is heavily influenced by international economic developments. many of these developments have resulted in increased uncertainty and risks. the emergence of china as an economic powerhouse means that the world is a different place to what it was just a decade ago. most parts of the world have also been experiencing a period of robust world growth, but while it may be true that every cloud has a silver lining, sometimes a silver lining may have a cloud. in some respects this holds true for the current world growth performance. some of the current uncertainties relate to the issues of global imbalances, asset price movements, oil prices and tighter conditions in financial markets. these issues add to the uncertainty within which monetary policy has to be conducted. 2. world economic growth in the recent world economic outlook published by the international monetary fund, the global economic environment is characterised by economic activity that has exceeded expectations, and signs of a build - up of inflationary pressures. these pressures originally emanated from oil and other commodity prices, but more recently have been a result of emerging capacity constraints. central banks have responded by generally tightening monetary policies. global imbalances however remain large. the balance of risks to the global outlook is seen to be biased to the downside, and although a benign market - led process of unwinding of global imbalances is seen to be the most likely outcome, the potential for a disorderly unwinding remains. estimates by the imf show that world growth has averaged 4, 2 per cent since 2000, as compared to 3, 2 per cent for the preceding decade.