forecasts. the mpc is of the view that should the forecasts materialise, the hiking cycle may be nearing its end. however, this does not mean the interest rate reductions are imminent, as we would like to see inflation more firmly within the target range on a sustainable basis over the forecast horizon. we are also clear that the bar for any future rate cuts has been set very high. although our mandate is inflation, it does not mean that we ignore growth considerations. the constitution states that what we do should be in the interest of balanced and sustainable growth in the republic. we have to be clear, however, about what monetary policy can achieve in this respect. our view is that long - term trend growth or potential output is determined by real factors in the economy. these include infrastructure, education, labour and product market efficiency, productivity growth, and institutional strength, to name a few. monetary policy can only impact on cyclical variations of growth around the growth trend. monetary policy cannot be an engine for sustained growth. this requires structural reform, in order to arrest the declining trend of potential output that we have observed over the past few years. however, implementing structural reform is difficult and it requires strong institutions and political management. some of it requires changes in processes that are expenditure neutral, for example product market reforms, and changing competition laws or labour laws, while others could require huge investment layouts, as in the case of infrastructure. these are political decisions, which are often difficult, and inevitably involve entrenched interests. it is often difficult to get societal buy - in or to change expenditure priorities when the country ’ s requirements are diverse and the means limited. in south africa, we do have a structural reform framework in the form of the national development plan, which has been adopted by all parties. it is not the plan that is lacking, rather its implementation. it is far easier to look for a quick fix such as monetary policy. this is not a peculiar south african phenomenon, however. monetary policies, in conjunction with fiscal policies, were instrumental in avoiding worse outcomes to the global financial crisis. but monetary policy is not the appropriate policy to raise potential output. yet, in the absence of meaningful structural reforms, the focus globally remains on monetary policy to provide the solution. this creates a challenge for central banks. as mohamed el - erian has noted in his recent book, central banks are now seen as the “ only game in town ” due to slow progress in the implementation of

late. global growth in 2015 was driven by the advanced economies and in particular by the sustained recoveries in the united states and united kingdom. the us experienced higherthan - expected growth in the third quarter, which, together with robust domestic private demand and job creation, allowed the fed last month to finally embark on its much anticipated lift - off as part of policy normalisation. market participants viewed the fed ’ s statement following the december fomc meeting as somewhat dovish, reinforcing the gradual prospective path of normalisation. furthermore, as demonstrated by the fomc ’ s “ dot plots ” over the last few fomc meetings, the range of the projected target federal funds rate has narrowed, signifying a more clearer and coherent path of normalisation. such perceived moderation of the fed ’ s expectations, together with ample advance notice through its communication strategy, no world economic outlook, imf, october 2015. bis central bankers ’ speeches doubt helped markets digest the dreaded “ first hike in the cycle ” ( the first increase in the fed funds target in almost ten years ) without major price swings. in japan and the euro area, however, growth remains weak and fragile. the euro area expanded by an annualised 1. 2 per cent in the third quarter, and indicators ranging from business confidence to credit growth are showing increasing signs of upward normalization. however, concerns over a lack of pricing pressures 2 prompted the ecb to lower its deposit rate and extend its qe programme last month. on the other hand, even as japan avoided a technical recession in the third quarter, inflation remains well below its 2 per cent target level. going forward, it is anticipated that growth in advanced economies will strengthen on the back of supportive fiscal and accommodative monetary policies and lower commodity prices. however, weaker growth in emerging markets and resultant feedback loops, harbour downside risks. emerging market growth continued to disappoint in 2015, with the slowdown in china, recessions in brazil and russia and weak commodity prices dominating the outlook going forward. china continues to rebalance its economy, and according to the imf is expected to have grown by 6. 8 per cent in 2015, and achieve growth of 6. 3 per cent in 2016. 3 monetary policy continues to support the economy, with the people ’ s bank of china reducing the policy rate by 165 basis points in 2015, and new fiscal measures announced in 2015 should help shore up demand and avoid a hard landing