an address by fundi tshazibana, deputy governor of the south african reserve bank, at the central bank of eswatini, mbabane, 17 november 2023 global shifts and regional spillovers – how are we performing? introduction ladies and gentlemen, thank you for the opportunity to address you today at this event hosted by our colleagues at the central bank of eswatini. the relationships between our respective central banks go back a long way – after all, the common monetary area ( cma ) of southern africa is the oldest existing currency union in the world, dating back to the beginning of the 20th century. the deep economic ties between the economies in the cma, and our pegged exchange rates, underscore a high synchronisation in our economic cycles, especially in responding to the impact from global shocks, trends and spillovers to the african region – a central theme of my talk today. the past three to four years have seen many global shocks, and their ramifications continue to reverberate. in fact, we are still uncertain about the long - term effects these shocks will have on the world economy, trade and capital flows. while the covid - 19 pandemic may no longer be a major health concern, we still face a world of relative price shifts, high inflation, re - organisation of supply chains and increasing geopolitical risks. encouragingly, both the global economy and our regional context have shown some resilience to these shocks. but some effects might come with a lag and complicate the task we, as central banks, face in maintaining price stability and financial stability. these are some of the issues i will try to address today. some encouraging global developments we are all well aware of the inflation surge experienced globally in 2021 and 2022, driven by supply and demand mismatches that emerged as economies reopened in a staggered manner after the covid - 19 - related lockdowns. during this period, advanced economies experienced inflation levels not seen since the early 1980s. to limit the permanent release of the inflation genie out of the bottle, advanced economy central banks had to act decisively by raising rates to levels last seen before the 2008 global financial crisis. 1 in emerging market and developing countries, most central banks had to tighten too, though the degree of the policy response varied considerably based on idiosyncratic factors. the good news is that in the past year or so, inflation rates have declined around the world. however

the financial system and the banking sector in particular. although household debt, as a percentage of disposable income, has been improving consistently since reaching a peak in the first quarter of 2009 and the ability of households to service their debt has remained strong given an extended period of low interest rates, the household sector is now faced by a rising interest rate cycle and higher cost of living. household wealth has increased strongly, however this was mainly as a result of a significant increase in the valuations of financial assets, possibly leaving consumers in a financially vulnerable position. house prices in south africa are fairly valued at present and do not present any risks to financial stability. equity market valuations, on the other hand, are currently at fairly elevated levels and a sudden and sharp correction in equity markets could reveal vulnerabilities that could have certain indirect negative effects on the financial system. south africa has been participating in the fsb ’ s monitoring exercise of non - bank financial intermediation activities, or shadow banking as it is commonly known, since 2012. although their share of total financial assets increased to about 18 per cent in the fourth quarter of 2013, non - bank financial intermediaries currently provide only about 11 per cent of total credit extension in the south african financial system. the optimistic outlook for some advanced economies continues to diverge from the more subdued growth outlook for emes amid persistent concerns over country - specific weaknesses. while leading indicators are pointing to the global recovery gaining strength in the second half of 2014, some constraints from both the fiscal and the monetary sides, as well as slow progress with structural reforms in some instances, remain a risk to a sustainable global recovery. a prominent exogenous risk to domestic financial stability is the effect that monetary policy normalisation in advanced economies and the us in particular could have on emes, including south africa. although normalisation has been discounted to an extent and forward guidance allows markets to anticipate policy moves better, the timing and magnitude of interest rate increases and their effects on capital flows and financial markets remain uncertain. another important global development, not reported on in the fsr, is the results of the european central bank ’ s comprehensive assessment of bank balance sheets and stress testing announced recently. twenty five banks failed the assessment and need to raise bis central bankers ’ speeches €25 billion of new capital. twelve banks have already covered their shortfalls in the year to september. the ecb expects the in - depth review of the largest banks to boost public confidence