Tonderai Katswara
7 April 2008
Windhoek — Although southern Africa has hardly been affected by the sub-prime mortgage crisis that hit the US last year, causing a ripple effect on the world economy, things will get worse for the region before they can get better due to inflationary pressures.
These were the warning words of South African Reserve Bank governor Tito Mboweni when he delivered a public lecture in Windhoek on Friday, on the origins and causes of recent financial market turbulence and its implications for the Common Monetary Area (CMA).
He was delivering the lecture after a meeting of CMA central bank governors held in the capital last week. The meeting was to discuss economic developments in the region.
Namibia shares the CMA with South Africa, Lesotho and Swaziland. The currencies of Namibia, Swaziland and Lesotho are all pegged to the South African rand.
Mboweni reiterated the words of Bank of Namibia Governor Tom Alweendo, who last week warned Namibians to tighten their belts because the economic forecast for the year was gloomy.
"Inflationary pressures currently pose a greater challenge to the CMA region's economies than the international financial turmoil and equally important, therefore, is assurance that we will continue to protect the purchasing power of the money in your pocket through appropriate monetary policies," Mboweni said.
The financial market strains that originated in the US sub-prime lending sector intensified in the second half of last year and led to a sell-off in global equity markets.
Global growth is slower this year, and this has led to weaker CMA exports.
Mboweni said the CMA had to deal with the global credit crunch as one force since the countries shared similar economic circumstances, and also because the same banks and financial institutions were active throughout the CMA.
"It is only fair to point out that the countries of the CMA are in this together, dealing with the impact of these disturbances.
South Africa and Lesotho, Namibia and Swaziland, through our currency union, have a shared financial market and similar if not identical interest rate policies."
Mboweni said although direct CMA exposure to the sub-prime crisis appeared limited, a couple of financial institutions with strong international presence may have had some exposure to the 'discredited instruments'.
He said the CMA central banks would continue monitoring the economic developments and keep a close watch on commercial banks to understand their level of exposure and risks.
"The international financial market turbulence has resulted in slower global economic growth, and is projected to continue doing so.
It's safer to keep your seatbelts on for now.
Things are going to get worse before they get better."
Mboweni said as far as the CMA money market was concerned, liquidity had remained adequate throughout the international financial market turmoil.
During a question-and-answer session, Mboweni refused to be drawn into commenting on the economic situation in Zimbabwe.
He would not talk about Zimbabwe's runaway inflation or what impact its economic meltdown had on the region.
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