wage growth rates in the euro area are already sounding warning bells. but i have a different take on the wage growth, which is indeed moderate. it is more likely to reflect a necessary employment - oriented wage policy. for some euro - area countries will have to increase their price competitiveness further in order to recoup global market share lost in the run - up to the crisis. although this wage moderation is dampening wage growth, it is promoting competitiveness and employment in the affected countries and is thus sustainably supporting aggregate demand. christian speck ( 2016 ), “ inflation anchoring in the euro area ”, deutsche bundesbank discussion paper, forthcoming. bis central bankers ’ speeches ladies and gentlemen, the risks to economic growth have undoubtedly risen, and this is, per se, reducing price pressures. a further easing of the already very accommodative monetary policy stance is therefore on the table. however, such a monetary policy response could have longer - run risks and side - effects that it would be dangerous to simply ignore. even the volume of sovereign bond purchases currently planned under the programme will make the eurosystem the member states ’ largest creditor. for a significant share of sovereign debt, government financing costs have become decoupled from capital market conditions : for this share, governments pay interest to central banks ; they then transfer these funds, which constitute part of their profit, back to their respective government coffers. the bottom line is that governments are obtaining funding for this share at the deposit rate, since these purchases are ultimately increasing banks ’ surplus liquidity. for these bonds, naturally, no distinction is being made any longer between these types of interest rates in terms of the soundness of government finances. this undercuts market discipline, the intent of which is to secure not only compliance with fiscal rules but also sustainable budgets. once governments have become accustomed to historically favourable funding terms for a considerable portion of their debt, pressure could subsequently mount to keep the programme alive longer than advisable from a monetary policy perspective, especially if the exceptionally low funding costs are not used for fiscal consolidation but more to dilute the fiscal policy. and this is precisely the case : if the lower interest expenditure is factored out of the euroarea countries ’ structural budget deficits, these deficits have seen no improvement for two or three years or have even become worse. the opportunity opened up by the low interest rates to bring down budget deficits particularly quickly is being squan

keynote address by lesetja kganyago, governor of the south african reserve bank, at saica ’ s courageous conversation session nelson mandela centre of memory, johannesburg 26 september 2017 sovereign rating downgrades and their impact on the poor good evening, ladies and gentlemen. the sovereign ratings of south africa, which are the key theme of my speech this evening, have been a prominent concern for policymakers and investors alike in recent years, and will again feature heavily in policy discussions as the year - end approaches. following the gradual and regular improvement in our country ’ s sovereign ratings from the advent of democracy to the mid - 2000s, which saw south africa regain investmentgrade status, south africa ’ s credit standing has again deteriorated in recent years. both standard & poor ’ s and moody ’ s rating agencies started downgrading south africa in 2012 ; this process culminated in the loss of investmentgrade status ( for foreign - currency debt ) in 2016 with two of the three major rating agencies. further reviews of south africa ’ s ratings are due before year - end. our growth and fiscal performance, in particular, are therefore under a high degree of international scrutiny at present. page 1 of 10 the financial market and policy implications of rating downgrades are well documented, ranging from difficulties in getting non - resident investors to finance the current account deficit, through a greater volatility of financial markets, to higher costs of borrowing for the sovereign. what many people are less familiar with are the implications for the public at large, for incomes and inequality, and in particular for the lower - income segment of the population. these are the points that i would like to discuss this evening. the general public, in particular the poorer households, may wonder how a rating downgrade can directly affect their daily lives. after all, poor people do not borrow overseas ; they do not run businesses that are dependent on financing by foreign investors ; they rarely travel overseas ; they do not directly hold shares in listed companies. some voices, indeed, may go further and say that south africa ’ s government should not pay excessive attention to the decisions of foreignbased rating agencies. these voices may argue that the decisions of rating agencies mostly affect wealthy individuals and have limited bearings on the economic well - being of the poorer majority. let me explain why such thoughts are misguided. irrespective of its direct implications, a sovereign rating downgrade does have indirect impacts on all the citizens of the country. these can be felt harder by