everyday economic activity, was not impaired. lastly, we assisted national treasury in setting up and administering government ’ s loan guarantee scheme, aimed at providing lending support to qualifying businesses. as we reflect on south africa ’ s response to the crisis, we should remember that we have an important conventional monetary policy tool, the overnight interest rate, at our disposal. this is in contrast to most advanced and a few emerging economies that operate largely at the zero lower bound of their policy interest rates and had to rely on large - scale quantitative easing ( qe ) – defined as central bank purchases of longer - term financial assets – as their main monetary policy tool to ease financial conditions and provide economic stimulus. 2 however, qe is a second - best alternative to stimulating the economy, and less relevant for a country such as south africa. we entered the covid - 19 crisis with our policy rate at 6. 25 % and were, as such, able to reduce it significantly by 275 basis points to 3. 5 % in a short pace of time. even with this large reduction, we are still far from the zero lower bound and can still rely on interest rates before having to consider qe - type measures, should economic conditions 1 sarb media release, ‘ changes to the money market liquidity management strategy of the south african reserve bank ’, 20 march 2020, available here sarb media release, ‘ further amendments to the money market liquidity management strategy of the south african reserve bank and additions to the monetary policy portfolio ’, 25 march 2020, available here prudential authority media release, ‘ regulatory relief measures and guidance to the banking sector in response to covid - 19 ’, 6 april 2020, available here south african reserve bank, ‘ note on south africa ’ s liquidity measures in response to the covid - 19 pandemic ’, quarterly bulletin, june 2020, available here 2 see b s bernanke, ‘ the new tools of monetary policy ’, american economic association presidential address, brookings institution, 4 january 2020, available here deteriorate and inflation moderate further down towards the lower end of the inflation target. 3. medium - term outlook for monetary policy while our policy response to the covid - 19 crisis has helped in stabilising financial markets and containing risks of a financial crisis, the near - term outlook for the economy remains very uncertain, even though we predict a strong recovery in third - quarter gross domestic product ( gdp ) from the second quarter ’ s low

are still businesses that are temporarily closed or operating at much lower capacity as a result of the crisis, and it is still unclear if and when they will return to their normal operations, for example those in the hospitality and tourism sectors. it will likely take some time before we are able to fully determine, with great certainty, how many permanent business closures will result from the crisis, which makes it difficult to accurately measure the supply - side of the economy. notwithstanding these uncertainties, several views are emerging globally that may be of relevance to south africa. the nature of the pandemic is expected to bring about various changes to the economy, including much slower capital accumulation than in the past and a change in tastes and preferences that will lead to reallocation effects in the economy. 3 some argue that, given the nature of the crisis, some capital will become obsolete very quickly and this has significant implications for the long - term productivity of the economy. 4 expectations of the potential long - term impact of the covid - 19 crisis on economic growth, along with rising levels of public debt, are also particularly concerning for a country such as south africa, given our large dependence on external financing as a result of our structural current account deficit. these unfavourable growth / debt dynamics could result in a change in global investor sentiment towards south africa, 3 see, international monetary fund, world economic outlook, october 2020 ; bank of canada, monetary policy report, october 2020 ; and bank of england, monetary policy report, november 2020. 4 see j kozlowski, l veldkamp and v venkateswaran, ‘ scarring body and mind : the long - term belief - scarring effects of covid - 19 ’, 2 september 2020. even as investors turn towards riskier assets such as emerging markets in search of higher returns. this may, in turn, affect capital flows to south africa and / or increase the risk premium investors require, particularly given that they already held an overweight investment position in south africa going into the crisis. a key consideration in this regard is whether we will see investor differentiation between emerging markets, with preference for those with strong growth and fiscal metrics. 4. conclusion and key lessons from the covid - 19 crisis let me end with a few concluding remarks and some key lessons from the crisis. many central banks, particularly in advanced economies, had to largely resort to qe with speed and vigour to stimulate their economies. at this