2016 ) bond increased to almost 8, 0 per cent in march 2011, due largely to a sell - off by non - residents, increased supply and expectations of higher interest rates in response to rising inflationary pressures. after recording strong bond inflows for most of 2010, non - resident demand for south african bonds started to wane in october 2010. during the fourth quarter of 2010, non - residents sold r22 billion worth of bonds. the sell - off was attributed to a global reallocation of emergingmarket portfolio investment towards equities, given the favourable economic backdrop for this asset class and increasing policy rates in some emerging - market economies. domestic factors that contributed to the sell - off in domestic bonds were related to perceptions that the interest rate cycle had bottomed out and to profit - taking. nonetheless, in 2010 non - residents bought r53, 2 billion worth of bonds ; three times the amount purchased in 2009, representing a shift from previous trends when portfolio inflows tended to be dominated by equity inflows. the strong appetite for domestic bonds continued to diminish in 2011. non - residents sold r8, 3 billion worth of bonds in the year to 6 april 2011, although we have seen significant net purchases in the last few days. despite net sales by non - residents, and the continued purchases of foreign exchange by the bank, the rand has remained firm but volatile, and in the process appreciated to r6, 6848 on 6 april 2011. for 2010 as a whole, the rand appreciated by about 12 per cent against the us dollar and by around 10 per cent on a trade - weighted basis. total turnover in the domestic foreign - exchange market increased to a record high of almost us $ 20 billion in january 2011, mainly due to an increase in hedging activities by non - residents. strong capital inflows into emerging market economies ( including south africa ) witnessed during 2010 have presented policy - makers with some challenges, such as appreciating exchange rates ( which raised concerns regarding the competitiveness of export markets ) and increased sterilisation costs. in the light of these considerations, some emerging - market economies made noticeable shifts towards curbing capital inflows and, hence, currency appreciation. measures considered and implemented include limits being placed on government bond investment by foreigners ; taxes imposed on the purchase of fixed - income securities and stocks by foreign investors ; and the pre - announcement of currency market intervention programmes in order to build foreign - exchange reserve balance

markets have been reflecting these levels of uncertainty and have been experiencing increased levels of volatility, with the vix index spiking to 30 index points in mid - march. efforts to try and find lasting solutions to the european sovereign debt crisis, currency interventions in the wake of the japanese disaster, sovereign rating downgrades and bank stress tests are all impacting on developments in financial markets. as they say, the only certainty in financial markets is uncertainty. the recent global and financial market developments are presenting challenges for monetary policy makers around the world, who have to ensure that they maintain credibility and protect macroeconomic stability by managing inflation risks, while at the same time avoiding undue damage to growth prospects by possibly acting too hastily to remove accommodative policies. bis central bankers ’ speeches 3. implications for south africa as a relatively small and open economy with sophisticated financial markets, south africa will not escape the impact of global economic and financial market developments. a third of south africa ’ s exports of manufactured products are destined for europe. the country sells commodities to asia and has been witnessing increased exports to that region. japan is south africa ’ s fourth largest trading partner, with platinum and other semi - processed metals being the major exports. south africa is a significant importer of oil. at the conclusion of the most recent monetary policy committee ( mpc ) meeting on 24 april 2011, we highlighted these international developments and indicated that, based on shortterm economic indicators, the domestic growth momentum would likely be maintained. we lifted our forecast for economic growth from 3, 4 to 3, 7 per cent for 2011. consumption expenditure – particularly by households – is holding up well, credit extension figures released last week show a better take - up of credit by businesses, implying that the recovery in investment spending will pick up and that subdued growth in gross fixed capital formation will improve. the improved reading on the most recent purchasing managers index to a level of 57, 2, with very encouraging readings for the business activity and new order components, appears to confirm the favourable outlook for the manufacturing sector. unfortunately, the employment subindex confirmed the serious challenges the country is facing with job creation. the mpc also highlighted the bank ’ s view that the risks to the inflation outlook are on the upside, with food and administered prices – particularly oil prices – being among the biggest risks. while we expect to remain inside the target range until the end of 2012, our most recent forecast, showing cpi averaging 5, 7