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

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

4. 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

5. International economic outlook Further weakening expected

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

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

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

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

10. US forecasts

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

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

13. 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

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

15. 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

16. Implications for South Africa Rand weakness

17. 1 Jan. 2000 = 100 Exchange rates eg74 21/09/01 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 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

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

19. Dividend payments to foreigners

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

21. Implications for South Africa Rand weakness Lower export volumes

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

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

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

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

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

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

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

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

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

31. 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

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

33. 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 ?

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

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

36. 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

37. SA Inflation