Changes to financial and foreign exchange regulatory arrangements

Introduction

In the 2010 Budget and the Medium Term Budget Policy Statement, the Minister of Finance said that details of proposed changes to financial and foreign exchange regulatory arrangements would be published before the end of this year. These proposed changes include:

• Regulation 28. The second draft of Regulation 28 was released on 10 December 2010. Linked to this draft, today the prudential foreign asset limits for institutional investors are also being revised.
• Discussion document. To allow for more time for internal consultations within government, the release of the comprehensive discussion document entitled Strengthening the financial sector to better serve South Africa is postponed and will now be released for public comment in February next year.

SA Reserve Bank: Quarterly Bulletin

Quarterly Bulletin

The global economic recovery continued in the third quarter of 2010, characterised by a considerable degree of divergence in economic performance and policy direction between countries and country groupings. Emerging-market economies continued to record stronger economic growth than developed economies. Monetary policy was tightened in a number of countries in order to obviate the possibility of overheating of the economy with the associated risk of escalating inflation. However, very low interest rates were maintained in the euro area, Japan, the United Kingdom (UK) and the United States (US). The US went further by stepping up quantitative easing. In the euro area concerns about fiscal sustainability and financial stability in Ireland intensified, with a steep increase in yields on Irish bonds being recorded. By late November the Irish authorities had entered into an agreement with the European authorities and the International Monetary Fund (IMF), providing for a large support package alongside a programme of fiscal consolidation.

SA regulators shielded the banking sector from the financial crisis

SA’s tight banking regulations have drawn praise for shielding the sector from the worst of the financial crisis that claimed iconic institutions such as Lehman Brothers two years ago.

In a joint report issued yesterday, the International Monetary Fund (IMF) and World Bank said local banks and insurance firms had remained profitable during the crisis, while their capital adequacy ratios had remained above the regulatory minimum.

The report states:

Address by Governor Gill Marcus

Address by Governor Gill Marcus to the Ordinary General Meeting of Shareholders of the South African Reserve Bank 8 December 2010

Today is an opportunity for us, together, to consider a very serious overview of where the Bank stands in terms of its internal organisation, its relationship with shareholders, and its role in the South African economy as we move into what will undoubtedly be a very challenging 2011 for the world and South Africa.

In the proceedings so far today we have endeavoured to address the questions you have asked as they relate to the work of the Bank and arising from the Annual Report and Financial Statements. While there are still a number of matters that will be addressed towards the end of the agenda, we trust that the open interaction marks a new beginning in the relationship with Bank shareholders who, in our view, have a vital role to play in ensuring independence, good governance and accountability.

The Rand navigating big winds

FNB Comment, by Cees Bruggermans

South Africa professes much protective policy action aimed at containing the Rand’s strength.

There are the SARB’s ongoing purchases of foreign reserves ($0.5bn monthly budgeted, these reserves likely climbing to $50bn by end-2011).

The SARB is using forward swaps to neutralize incoming corporate deals (there could still be many such deals, for many of our corporate assets still look desirous).

There is the exchange control relaxation (improving Rand two-way trade) and possible increased overseas diversification by public pension funds.

Too much power for state in Patel’s NGP

Economic Development Minister Ebrahim Patel’s New Growth Path document put too much emphasis on state intervention, and could both spook investors and drive skilled workers out of the country, SA’s largest business group warned yesterday.

There was little recognition of the private sector as the real driver of the economy in the document released by Mr Patel last week, c (Busa) said.

It maintains there is little new in the proposals, compared to several official growth programmes launched since 1994, including AsgiSA, the accelerated and shared growth initiative of SA.

Has monetary policy independence been undermined?

Address by Gill Marcus, Governor of the South African Reserve Bank to the 1926 Rand Club, Johannesburg - 30 November 2010 

We are nearing the end of a difficult year, a year that began with so much promise but is now ending on a note of high uncertainty. On the global front, the expectations of a normalisation in the advanced economies were proved to be wrong, and indications are that low growth and accommodative monetary policies are likely to be sustained for some time. This has contributed to the strength of the rand exchange rate as capital continues to flow out of the advanced economies in search of higher yields. Domestically, growth has also disappointed. However the strong rand has contributed to the more benign inflation environment which, along with a persistent negative output gap, has contributed to lower interest rates.