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Jac Laubscher Chief Economist

Comments on the Annual Report of the South African Reserve Bank. Parliamentary Committee on Finance 28 September 2001. Jac Laubscher Chief Economist. Agenda. Key points from SARB reports International economic outlook Implications for South Africa Monetary policy implications

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Jac Laubscher Chief Economist

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  1. Comments on the Annual Report of the South African Reserve Bank Parliamentary Committee on Finance 28 September 2001 Jac Laubscher Chief Economist

  2. Agenda • Key points from SARB reports • International economic outlook • Implications for South Africa • Monetary policy implications • Some thoughts on inflation targeting

  3. Key points from SARB reports • Economic growth moderating • Exports performing well / Current account surplus • Inflation target likely to be attained • National finances are sound • Employment creation remained sluggish • Productivity growth because of job-shedding • Capital account remains vulnerable • Improvement in trade account cancelled out by deterioration in services account • Steep depreciation in the rand

  4. International economic outlook • Further weakening expected

  5. Uys: IGRAPH usnapm\!pc(usagpr,4) quarterly USA NAPM vs. GDP growth ceg118

  6. International economic outlook • Further weakening expected • Heavily dependent on consumer confidence

  7. Uys: IGRAPH usconf !pc(usaret,12) - monthly US consumer confidence vs. retail sales

  8. International economic outlook • Further weakening expected • Heavily dependent on consumer confidence • Lower turning point postponed

  9. US forecasts

  10. International economic outlook • Further weakening expected • Heavily dependent on consumer confidence • Lower turning point postponed • Commodity prices under pressure

  11. Uys: IGRAPH !pc(OETIND,12) !pc(WCPMET,12) monthly OECD industrial production vs. metals prices

  12. International economic outlook • Further weakening expected • Heavily dependent on consumer confidence • Lower turning point postponed • Commodity prices under pressure • Negative for emerging market economies • Further easing in monetary policy expected

  13. Uys: IGRAPH fedfnd monthly US Fed funds target rate

  14. International economic outlook • Further weakening expected • Heavily dependent on consumer confidence • Lower turning point postponed • Commodity prices under pressure • Negative for emerging market economies • Further easing in monetary policy expected • Fiscal policy to become expansionary • Greater awareness of risk • Constraining international capital flows

  15. Implications for South Africa • Rand weakness

  16. IGRAPH data !bs(usdzar,e,100)!bs((usdzar*eurusd),e,100)!bs((usdzar/usdjpy),e,100)!bs(gbpzar,e,100) weekly based to 100=1/1/2000 USER49 = CURRENCY Exchange rates 1 Jan. 2000 = 100 21/09/01 eg74

  17. Currency movements vs. US dollar 1 January to 26 September 2001

  18. Dividend payments to foreigners

  19. Switzerland UK Czech Rep. Poland Denmark Euroland Greece Norway Morocco Japan Indonesia New Zealand Turkey Australia Brazil South Africa Sweden Chile Mexico Israel Exchange rate movements vs. US dollar since 1 September 2001

  20. Implications for South Africa • Rand weakness • Lower export volumes

  21. IGRAPH: EXPT/NGDPF quarterly Exports/GDP ratio

  22. Implications for South Africa • Rand weakness • Lower export volumes • Weaker current account • Lower economic growth

  23. IGRAPH: rb6006z from SARB annually forecast from economic spreadsheet SA GDP growth

  24. Monetary policy implications • Beware of sentiment • Financial markets should not dominate thinking

  25. Weekly change in All Share Index Mean = 0.13 Std.Dev. = 2.82

  26. Monetary policy implications • Beware of sentiment • Financial markets should not dominate thinking • Monetary policy and asset prices

  27. Uys: IGRAPH usconf\nasdaq[cl] monthly US Consumer confidence vs. Nasdaq

  28. Monetary policy implications • Beware of sentiment • Financial markets should not dominate thinking • Monetary policy and asset prices • What to make of rand weakness

  29. IGRAPH: (file jlgrowth – user49) !pc(ppimps,12)\!pc(ppisas,12) monthly PPI Inflation : Imported vs. Domestic

  30. Monetary policy implications • Beware of sentiment • Financial markets should not dominate thinking • Monetary policy and asset prices • What to make of rand weakness • Outlook for the oil price / US dollar

  31. IGRAPH: BRSPOT\USDZAR[CL] monthly Oil price vs. US dollar

  32. Monetary policy implications • Beware of sentiment • Financial markets should not dominate thinking • Monetary policy and asset prices • What to make of rand weakness • Outlook for the oil price / US dollar • Should the SARB follow global trends ?

  33. Some thoughts on inflation targeting • Is inflation targeting still the appropriate monetary policy regime ?

  34. IGRAPH: SAREP1\FEDFND monthly SARB Repo rate vs. Fed funds rate

  35. Some thoughts on inflation targeting • Is inflation targeting still the appropriate monetary policy regime ? • Escape clause should be communicated explicitly, or… • …the target redefined • Now is not the time for a tighter target range

  36. SA Inflation

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