The International Transmission of Monetary Policy - Lessons Learnt in South Africa

12 Pages Posted: 7 Oct 2014

See all articles by South African Reserve Bank (SARB)

South African Reserve Bank (SARB)

Government of the Republic of South Africa - South African Reserve Bank

Date Written: August 2014

Abstract

Changes in the monetary policies of major countries impact on the exchange rates and interest rates of emerging market (EM) countries, although the extent differs. Some EMs appear to be more exposed, owing to factors such as the size of current account deficits and low levels of foreign direct investment (FDI). As longer term bond flows to EMs increased, long-term rates in major financial centres have become more important since the global recession and particularly since talk of tapering initially began in May 2013. South African monetary policy, which is conducted in an inflation targeting framework, responds to changes in advanced economy (AE) monetary policies in an orthodox and therefore fairly well-understood manner.

Emerging markets reserves accumulation gathered pace following the global financial crisis. The SARB too has accumulated reserves in recent years, and follows a policy of sterilizing the liquidity. It has also recently announced some diversification of its reserves. Growing diversification of assets by international investors towards EM domestic currency bonds and equities for the international financial system should help to reduce concentration risk and achieve a more stable foreign investor base for EM issuers.

Full publication: The Transmission of Unconventional Monetary Policy to the Emerging Markets

Keywords: Bond market, exchange rate, share market, current account, FDI, foreign exchange reserves, Fed, interest rates, monetary policy, stabilisation

JEL Classification: G15; E52; E58; E59; F65

Suggested Citation

(SARB), South African Reserve Bank, The International Transmission of Monetary Policy - Lessons Learnt in South Africa (August 2014). BIS Paper No. 78v, Available at SSRN: https://ssrn.com/abstract=2500398

South African Reserve Bank (SARB) (Contact Author)

Government of the Republic of South Africa - South African Reserve Bank

Monetary Policy Research Unit
Research Department
Pretoria
South Africa

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