mohammed iqbal belath : africa and the indo - pacific – the new economic mainspring welcome address by mr mohammed iqbal belath, second deputy governor of the bank of mauritius, at the second meeting of the official monetary and financial institutions forum ( omfif ) in africa, hosted by the bank of mauritius, port louis, 5 november 2012. * * * governors deputy governors members of the management board of omfif members of the advisory board of omfif distinguished guests ladies and gentlemen a very good morning and warm welcome to you all! i feel privileged to deliver this welcome address on the occasion of the 2nd meeting of omfif in africa, which demonstrates the growing importance of the dark continent on the global map. the continent has come a long way from its ruthless, poverty - stricken and unstable political environment. today, africa is looked upon as the continent full of opportunities, the place where we may say the “ next big things to unfold ”. the hosting of this meeting in mauritius is a premiere for the bank and i will like to salute the vision of governor bheenick to put our bank on the radar of official monetary and financial institutions forum. the 1st meeting in africa, the inaugural one, was held a year ago in pretoria at the south african reserve bank, when the sarb was celebrating its 90th anniversary. the 2nd meeting is being held at the bank of mauritius, which is celebrating its 45th anniversary this year. perfect symmetry? sheer coincidence? i ’ d rather not venture to know the venue for the 3rd meeting in africa!!! leaving aside the perfect symmetry of these anniversaries, i believe that it is the ideal time to be in africa and to deliberate of the topic of the meeting : africa and the indo - pacific : the new economic mainspring. the us secretary of state, hillary clinton, first coined the term “ indo - pacific ” officially in october 2010, in honolulu, in a geopolitical sense, to elucidate developments in the asia pacific region. her husband, former president bill clinton, on one of his innumerable trips to africa, declared and i quote “ we are living in the most interdependent time in history. the evidence is all around us. wealth and talent now cross borders that are more like nets than walls but so do less positive forces. the financial crisis that started in the united states and swept the globe proved just how deeply our social and economic fates are intertwined —

the cash flow of borrowers once interest rates have adjusted to the low - inflation environment, and contribute towards sound factor allocation, it cannot do any of these things overnight. allowance should be made for long and variable lags in the operation of monetary policy. a stable environment of low inflation is no guarantee that the private sector will be willing to take risk and establish enterprises, in the process employing resources and producing more output. neither can it guarantee that government will produce the public goods and services necessary to support sound growth and development. efficiency in such production, whether by the private sector or by government, can also not be guaranteed. nevertheless, the absence of distortions arising from inflation significantly improves prospects that these very deserving things will happen and will be reflected in improved growth and employment outcomes. 2 / 4 monetary policy in our case does not simultaneously target inflation and the exchange rate. once the inflation targeting framework was introduced, the exchange rate has essentially been left to be determined by supply and demand forces in the market. not that there is no relationship between inflation and the exchange rate : if inflation is kept low as it is in our significantly large trading partner countries, the exchange rate is mostly likely to move sideways over the long run. but this does not constitute exchange rate targeting. to develop this point further, one of the calls frequently made is for deliberate depreciation of the exchange value of the rand in order to retain and expand employment in the tradables sector and to enhance overall growth. to realise such a goal in practice would conceivably require some combination of significant exchange rate interventions by the bank, a radical lowering of interest rates, abolishing of exchange controls and pronouncements by the bank that it views the external value of the rand as too strong. each of these, however, has its own challenges. foreign exchange interventions of the kind demanded of the bank involve payment of rand by the bank to the privatesector banks for such foreign currency. in order not to flood the money market with excessive rand liquidity, the rand created has to be sterilised. this involves an interest cost on the instruments used to sterilise the excess liquidity, such as the bank ’ s debentures or government bonds. having raised the bank ’ s gross reserves from us $ 8 billion two years ago to almost us $ 20 billion at present, the interest cost of sterilisation – ultimately for the account of the taxpayer – has been considerable. lower interest rates could lead