overall net positive, there are also negatives to the decline in the oil price. a number of our export partners in africa, such as angola and nigeria ( which are oil - exporting countries ), have been severely affected by the decline in oil prices. reduced export revenues and growth in these economies will adversely affect their trade with south africa. added to this has been the generally weak global growth outlook, particularly in some of south africa ’ s major trading partners, including the eurozone and china, which also offsets the positive impact arising from the decline in oil prices. furthermore, a lower oil price may strengthen disinflationary pressures in places like the eurozone and japan, further weakening their growth prospects 1 with adverse implications for countries like south africa which are reliant on these export markets, although we are encouraged by the most recent assessment of the outlook for the eurozone and japan as contained in the april 2015 weo. on balance, for an oil - importing country like south africa, the positives of an oil price decline outweigh the negatives. however, we cannot afford to be complacent. in south africa, the risk to the inflation outlook is tilted to the upside for a variety of reasons. firstly, oil price developments are uncertain. secondly, while expectations of us monetary policy normalisation appear to have been moved out, any surprises to the contrary could increase the already high volatility in financial markets, and particularly in foreign - exchange markets. finally, the current decline in inflation rates as a result of the recent oil price movements, in effect, means that inflation outcomes in a year ’ s time will be subject to strong adverse base effects. the policy challenge is to ascertain the future path of oil price developments – this is a formidable task! it is uncertain whether the lower price levels that we are currently experiencing are transitory or permanent. put differently, could oil prices increase again as quickly as they went down? while there seems to be consensus that we would not return to the most recent peaks, unfortunately, these questions do not lend themselves to easy and clear answers. according to imf ’ s world economic outlook update, january 2015, despite substantial uncertainty about the evolution of supply and demand factors, futures markets suggest that oil prices will rebound but remain below the level of recent years. experience to date does, however, show that futures prices have been poor predictors of spot prices on the oil market. it is clear that

. us dollar appreciation since october 2014, the dollar has appreciated by more than 5 per cent in effective terms. while this appreciation remains modest from a historical perspective, signs point to the possibility of further appreciation in the future for a variety of reasons. firstly, history suggests that a drop in oil prices is often accompanied by a rise in the us dollar. secondly, the stronger dollar could reflect the relative strength of the us economy and the expected rate hikes. thirdly, geopolitical risks have promoted a return to “ safe haven assets ” and us treasury bonds in particular. lastly, the expansion of dollar credit outside the us since the crisis could add to the appreciating pressures in the future. the impact of a stronger dollar on emerging economies is not as clear - cut as one may expect. other factors being constant, a stronger dollar implies the depreciation of other currencies. to the extent that the dollar strength is a result of stronger us growth, other countries ’ exports – and thus growth – would benefit from increased demand from the us and from a more competitive domestic currency. south africa ’ s benefit from this channel is, however, likely to be somewhat limited given the us share of our exports : 8, 2 per cent in 2013 compared to 20, 5 per cent for the euro area. then there is the issue of the impact of rand depreciation on inflation outcomes. there is evidence that the pass - through of exchange - rate depreciation to inflation may have declined in recent times, but the adverse impact of currency depreciation on inflation outcomes cannot be ignored, especially if the depreciation occurs over an extended period. additionally, over the past year, south african long - term bond yields have been declining, even as the rand continued to weaken against the us dollar. for example, while off its late - january lows, the yield on the r186 bond is still about 130 basis points below early - 2014 levels. the current yields are nevertheless still substantially higher than the levels that prevailed prior to the “ taper tantrum ”. in addition, it is important to note that while the rand has depreciated against the dollar, it has appreciated against the yen and the euro. the south african economy would face new challenges should a strong dollar persist and a tightening of monetary policy in the us materialise while growth in the euro area remained weak. rising interest rates in the us would have an adverse impact on borrowing costs, while a weaker