an environment of heightened uncertainty. in light of the growing fiscal risks and increased domestic financial market volatility, the mpc has to be cognisant of the possibility that the inflation outlook could deteriorate further. the mpc also has to weigh the risks i have outlined earlier, including the possibility that the global environment could turn less favourable, which, in the current circumstances, could exacerbate the downward pressure on domestic financial assets. at the end of the day, the mpc is well aware of the current weakness in economic growth, with continued downside risks, and will, wherever possible within its mandate, strive to support an improvement in economic activity through an appropriate monetary stance. however, in an environment characterised by elevated uncertainty, where inflation expectations could become unanchored, the best approach for the sarb is to minimise the number of threats to price and financial stability. consequently, the mpc will continue to closely monitor both global and domestic developments as well as their implications for the inflation outlook, and will act accordingly. conclusion while acknowledging that five weeks can be a long time in economies and markets, i think we can reasonably safely already draw the conclusion that the global backdrop in 2017 proved to be more benign than many had anticipated. for the first time in many years, the outlook is finally looking promising, with global growth gathering momentum, without yet generating too much inflation. financial markets have generally performed well. south africa faced a particularly challenging domestic environment, which affected growth performance, mainly because of low business and consumer confidence. we failed to fully take advantage of the global cyclical upswing. the inflation outlook improved during the year, and inflation is expected to be inside the target range over the forecast horizon. but more recently upside risks to the inflation outlook have been intensifying, which will require careful monitoring. page 11 of 12 as niels bohr said : “ prediction is very difficult, especially if it [UNK] s about the future ”. we do not know what 2018 has in store for us, and how the global risk profile will unfold. the relatively benign global backdrop in 2017, should not make us complacent, but rather encourage us to take advantage of the current cyclical economic upswing to strengthen our structural reforms and implement growth - friendly policies that are needed to boost economic growth and create employment. in south africa, 2018 provides an opportunity to press the “ reset button ” and, through a collaborative approach, to try and break the self -

done at the bis central bankers ’ speeches previous level of the exchange rate could determine the extent to which producers can absorb the increased prices and costs. we must also distinguish between a once - off depreciation and a continuous depreciation. the latter is likely to lead to much more severe impacts on inflation, and most likely to lead to a price - wage - exchange rate spiral. a once - off depreciation would be expected to elicit some price response, but the impact on inflation is likely to be of limited duration, once the pass - through has occurred. so from a monetary policy perspective the challenge is not only to take a view on the future path of the exchange rate, but also the impact of these moves on inflation. the view of the mpc at this stage is that underlying support for the rand is still there, as the factors that led to the strong rand in the first place still prevail, and interest rates in the advanced economies are expected to remain lower for longer. however in the short run the volatility of the rand will be determined by bouts of risk aversion in global financial markets. the general expectation, as reflected in the consensus forecasts, is that the rand is unlikely to return to previous elevated levels of below r7 to the dollar, but is expected to appreciate somewhat from current levels. this view would seem to assume some orderly near - term resolution of the eurozone crisis. because the mpc assessed the risks emanating from the global economy to be on the downside, it sees an upside risk coming from the exchange rate. does this necessarily imply that should the eurozone crisis deteriorate, any further exchange rate depreciation would ultimately lead to a tightening of monetary policy? the answer clearly depends on what is happening to other factors as well. we should recall that at the height of the crisis in 2008 / 09 monetary policy was loosened despite the much more pronounced depreciation that is currently being experienced. at that stage there were a number of offsetting effects that meant that a more benign inflation outlook could be expected. these factors included the widening output gap and associated contraction in domestic expenditure, and the collapse of global commodity prices. we should not forget that the weaker rand also comes with its advantages. it makes our exports more competitive, and imported goods more expensive, which should provide a boost to domestic producers. this is in effect an easing of monetary conditions for domestic producers. however this advantage will be short - lived