gill marcus : the outlook for monetary policy address by ms gill marcus, governor of the south african reserve bank, to the bureau for economic research annual conference, johannesburg, 22 april 2010. * * * introduction the global economy appears to be emerging from one of its most turbulent periods in living memory. due in part to the unprecedented and largely coordinated policy responses that were undertaken by monetary and fiscal authorities around the world, we seem to have weathered the storm. however, while there are many positive developments, we cannot be blind to the risks and uncertainties that persist which could have systemic implications globally. it is against this uncertain global backdrop that we have to implement monetary policy domestically. because monetary policy has to be forward looking, it is a truism then that monetary policy is always conducted in an uncertain environment. however it is probably true to say that the current environment is still characterised by heightened uncertainty. we therefore face difficult challenges in ensuring that inflation remains under control while allowing for the continued recovery of the domestic economy, which remains fragile. in my address today i will make a few comments on the lessons of the crisis for the monetary policy framework. i will then give a brief overview of the current domestic and global situation and end with some remarks on the outlook for monetary policy. the global crisis and monetary policy in south africa, there has been considerable focus on inflation targeting. the debate has generally revolved around the impact of monetary policy on domestic growth. globally, there has also been a renewed focus on inflation targeting, but for very different reasons. the argument put forward by, amongst others, bill white, formerly of the bis, argues that inflation targeting contributed to the global crisis precisely because it was too successful. the period of the 2000s was one where global inflation was low and, in terms of the narrow focus on inflation, it meant that central banks could keep interest rates at very low levels. these low interest rates, the argument goes, led to excessive credit extension and asset bubbles in the housing and equity markets, and to the lending excesses that ultimately caused or exacerbated the crisis. in other words, by focusing too narrowly on inflation, monetary policy ignored the financial stability implications of low interest rates. this throws the issue of financial stability squarely into the monetary policy arena. what should the appropriate policy have been under these circumstances? bill white argues that it means that interest rates should have been higher than they were, and this would have prevented the need for such low interest rates later on.

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