economy. however, the speed and extent of tightening will be sensitive to domestic growth considerations, and to the pace of normalisation in the us which is likely to impact on the south african economy indirectly through the exchange rate. at this point in time, we are in what we assess to be a moderate extended cycle. that means the interest rates will not necessarily be adjusted at each meeting, or move by the same amount. in this context, we are often asked if a 25 basis point adjustment is a possibility. yes, it is. when the repo rate was in double digits, a 25 basis point change would make little impact. but at current levels of the repo rate, it is an option. can 25 basis points make an impact? perhaps not on its own, but seen in the context of a longer cycle, it could be part of a cumulative increase, particularly should the mpc wish to see a smoother and more gradual adjustment. the disadvantage of such a strategy, however, is that it could mean that we “ fall behind the curve ”, which may require even stronger moves later on. a more moderate approach, on the other hand, could allow for easier adjustment to changing circumstances, and a less volatile interest rate environment in the short to medium term. in conclusion, the domestic economy is facing enormous headwinds, many of which are of our own making, and therefore within our capability to resolve. high on the list is the currently debilitating labour relations environment, and it is incumbent on all parties to resolve these issues. all parties need to recognise their own roles in bringing about this toxic environment, and consider the significant costs to the individual workers, the affected companies and the country of not resolving these disputes. monetary policy cannot resolve these issues, nor can it deal with structural constraints to longer term growth. rather, the role of monetary policy is to contribute to a stable macroeconomic environment conducive to inclusive higher growth. the national development plan is a broad blueprint for dealing with these structural issues and the focus should remain on implementation of this plan. the south african economy has enormous potential, but it also faces significant social demands in the context of high unemployment. let us all work together so that we get inclusive growth going again and realise the great potential we have as part of a growing region. thank you. bis central bankers ’ speeches

the advanced economies have been through this process are on a path of sustained recovery. the us economic recovery appears to be taking hold, with a clearer path of fiscal consolidation and stronger bank and corporate balance sheets. households deleveraging has also occurred, and the housing market has shown signs of improvement. however, severe weather conditions earlier in the year resulted in a contraction in the first quarter, and it will be difficult for the economy to achieve the 2, 8 to 3, 0 per cent growth forecast recently by the us fed. nevertheless, the underlying strength appears to be there, and the market consensus is for an annual growth rate of around 2, 5 per cent. the uk economy also appears to have moved to a sustained recovery path, with growth of around 3 per cent expected this year. unfortunately, the outlook for the eurozone, an important export market for south africa, is much less favourable. although the region has emerged from recession, growth is expected to be anaemic, with continuing concerns about deflation, particularly in some of the european periphery. consequently, the ecb has taken significant measures in an endeavour to stimulate growth in the region. the german economy appears to be sound, but france has recently slowed down significantly. although the japanese economy recorded strong first quarter growth of 5, 9 per cent in anticipation of bis central bankers ’ speeches the introduction of consumption taxes, this is not expected to be sustained, and the outlook remains uncertain with an annual growth rate expected to be around 1, 5 per cent. the mixed signals emanating from the advanced economies have important implications for emerging markets, including south africa. the abnormally low interest rate environment in the advanced economies, coupled with quantitative easing, led to an almost undiscriminating wall of money flowing into emerging markets. these flows suddenly reversed following the announcement by the us fed in may last year that it was considering tapering its programme of quantitative easing. the initial impact on emerging market bond and foreign exchange markets was severe, particularly those markets which were relatively open and liquid, including south africa. the uncertainty surrounding the timing and speed of tapering resulted in a highly volatile period for emerging markets. when tapering was eventually confirmed in december last year, attention then focused on the timing and speed of us policy normalisation, which is the increase of the policy rate from the zero bound to more “ normal ” levels. so while tapering is steadily continuing, and is expected to be completed later this year, there is a