t t mboweni : overview of the south african economy address by mr t t mboweni, governor of the south african reserve bank, at the 89th ordinary general meeting of shareholders, pretoria, 17 september 2009. * * * introduction the past year has witnessed the most severe global economic downturn since the 1930s. at the time of the previous annual general meeting, the impact of the financial market crisis was becoming evident in various economies. however, at that stage the extent and depth of the global recession were still to be realised. in response to the slowdown, central banks and governments around the world have taken unprecedented and unconventional steps to protect their banking systems and economies. in south africa the well - regulated banking system was relatively insulated from the fallout. however, the globalised nature of the downturn meant that the domestic economy was not spared, and the resulting domestic recession required appropriate fiscal and monetary policy responses. these developments posed a new challenge to monetary policy and resulted in a renewed focus on matters of financial stability. appropriate supervision and regulation of the domestic banking sector and payment system have ensured an orderly financial market environment. although inflation was outside the target range, the stance of monetary policy was loosened significantly in the face of an expected moderation in inflation and a weakening economy. nevertheless, some upside risks to the inflation outlook remained and this constrained the monetary policy response somewhat. apart from these concerns, the south african reserve bank ( the bank ) also focused on maintaining and improving its internal operations. a comprehensive economic report, which is included as part of the annual report 2008 / 09, provides an analysis of developments in the domestic and international economy during the year under review. particular emphasis is placed on those developments that have had implications for the operations of the bank. as is usually the case, the focus of this address is on the main operational areas of the bank. monetary policy during the past year, monetary policy has been faced with new challenges. for the first time since the introduction of the inflation - targeting framework in 2000, monetary policy had to be implemented in the context of a domestic recession and against the backdrop of the severe and synchronised downturn in the world economy. at the same time, inflation remained well above the upper end of the inflation target range and, despite the downside pressures, targeted inflation was only moderating at a very slow rate. at the time of the previous annual general meeting, inflation was significantly outside the target range. the consumer price index excluding mortgage interest

force the authorities to again allow the kind of depreciation in the yuan exchange rate that had prompted a tightening in global financial conditions in late 2015 and early 2016. concerns about the sustainability of economic stabilization in china also raised worries that the prices of many commodities ( in particular of metals and minerals ) could experience a renewed sell - off in view of china [UNK] s key role in shaping demand for these commodities. furthermore, the last few months of 2016 saw a jump in crude oil prices as key producers, both inside and outside of opec2, somewhat surprisingly agreed on freezing production levels. as the market adjusted to a new supplydemand equilibrium, the possibility of a further rise in oil prices at a time when other commodity prices could be on the back foot posed a risk to the economic recovery of both the advanced economies and the oil - importing emerging economies. organization of the petroleum exporting countries page 3 of 12 the global backdrop that proved benign in 2017 however, as we look back at the developments over this year, we can be thankful that most of the risks i have listed above did not materialise. in the us, policy normalization continued largely like the fed had anticipated at the start of the year. the fomc3 raised its federal funds target rate by 25 basis points each at its march and june meetings, and markets largely anticipate a third hike in december, which would bring the funds target rate to 1. 25 - 1. 50 %, in line with the median forecast of the fomc participants at the start of 2017. separately, the fed began the gradual unwinding of its balance sheet in october. yet these steps have not triggered the yield - curve steepening or the sell - off in riskier assets that many feared. in fact, on 17 november, the 10 - year us treasury yield stood at 2. 36, which was 8 basis points lower than at the beginning of the year. the yield curve has thus flattened. at the same time, us corporate credit spreads, both investment - grade and high - yield, are lower than at the start of 2017, and the s & p 500 equity index has rallied by 15 % over the period. several factors contributed to this solid market performance. on the macroeconomic front, while real economic activity in the us continued to expand at a solid pace, price and wage inflation kept undershooting most official and private forecasts. indications that prices may have become structurally less responsive to an erosion of