times, dwarfed the net accumulation. the sarb has continued to build reserves as and when this has been appropriate. the recent reduction of interest rates was seen by some as an attempt to weaken the rand. this was not a factor in our decision. past experience has shown that the response of the rand to lowering or raising interest rates is unpredictable, and it has previously responded by both appreciating and depreciating for varying periods of time. however, the recent rand strength has resulted in an improved inflation outlook, which in turn gave room for a further rate reduction. while we do not target the exchange rate, we would want to see the rand at a stable and competitive level. unfortunately, we have seen that achieving this is not straightforward. the global outlook in assessing the future direction of monetary policy, it is important to have a view of the global and domestic outlook. previous speakers will have dealt with these issues at greater length. overall the global outlook is a lot more positive than it has been for some time. many growth forecasts have been revised up progressively over the past months as the fear of a “ double dip ” or w shaped recovery has receded. the latest world economic outlook expects global growth to average 4, 2 per cent in 2010 and 4, 3 per cent in 2012. in september 2009 their forecast for 2010 was 3, 1 per cent. emerging markets in general, and china in particular, which is forecast by the imf to grow by 9, 6 per cent this year, have been growing strongly, and there are now fears of evolving asset price bubbles in china. growth prospects in the advanced economies have also improved : the weo forecasts us growth to measure 3, 1 per cent in 2010, and 2, 6 per cent in 2011. in september 2009 the forecast for 2010 was 1, 5 per cent. growth prospects in the euro area have also improved, but remain subdued at 1, 0 per cent for this year. despite the good news and increasingly positive outlook, we cannot ignore the significant risks and uncertainties that still abound. the responses by governments and central banks around the world were necessary to prevent a full - blown depression. however the reversal of these positions is a significant challenge and timing will be crucial. in particular, we have seen unsustainable increases in fiscal deficits and debt ratios in a number of advanced economies. for example, fiscal deficits in the united kingdom, greece, ireland and the united states are expected

gill marcus : the outlook for monetary policy address by ms gill marcus, governor of the south african reserve bank, to the bureau for economic research annual conference, johannesburg, 22 april 2010. * * * introduction the global economy appears to be emerging from one of its most turbulent periods in living memory. due in part to the unprecedented and largely coordinated policy responses that were undertaken by monetary and fiscal authorities around the world, we seem to have weathered the storm. however, while there are many positive developments, we cannot be blind to the risks and uncertainties that persist which could have systemic implications globally. it is against this uncertain global backdrop that we have to implement monetary policy domestically. because monetary policy has to be forward looking, it is a truism then that monetary policy is always conducted in an uncertain environment. however it is probably true to say that the current environment is still characterised by heightened uncertainty. we therefore face difficult challenges in ensuring that inflation remains under control while allowing for the continued recovery of the domestic economy, which remains fragile. in my address today i will make a few comments on the lessons of the crisis for the monetary policy framework. i will then give a brief overview of the current domestic and global situation and end with some remarks on the outlook for monetary policy. the global crisis and monetary policy in south africa, there has been considerable focus on inflation targeting. the debate has generally revolved around the impact of monetary policy on domestic growth. globally, there has also been a renewed focus on inflation targeting, but for very different reasons. the argument put forward by, amongst others, bill white, formerly of the bis, argues that inflation targeting contributed to the global crisis precisely because it was too successful. the period of the 2000s was one where global inflation was low and, in terms of the narrow focus on inflation, it meant that central banks could keep interest rates at very low levels. these low interest rates, the argument goes, led to excessive credit extension and asset bubbles in the housing and equity markets, and to the lending excesses that ultimately caused or exacerbated the crisis. in other words, by focusing too narrowly on inflation, monetary policy ignored the financial stability implications of low interest rates. this throws the issue of financial stability squarely into the monetary policy arena. what should the appropriate policy have been under these circumstances? bill white argues that it means that interest rates should have been higher than they were, and this would have prevented the need for such low interest rates later on.