brics monetary_policy_presentation

MACRO-ECONOMICS TERM PROJECT : BRICS MONETARY POLICY

Presenters : GROUP2Naveen Malik – 2015SMN6557Vaibhav Sawhney – 2015SMN6576Swati Tyagi – 2015SMN6572Mohit Chaturvedi – 2015SMN6556

BRICS – AN INTRODUCTION

BRICS NATION ECONOMY & MONETARY POLICY BRAZIL RUSSIA INDIA CHINA SOUTH AFRICA

BRICS : SWOT ANALYSIS CONCLUSION REFERENCES

BRICS – AN INTRODUCTION

BRICS NATION ECONOMY & MONETARY POLICY BRAZIL RUSSIA INDIA CHINA SOUTH AFRICA BRICS : SWOT ANALYSIS CONCLUSION REFERENCES

BRICS – An Introduction

B R I C SHistory: Originally BRIC before inclusion of South Africa in 2010 BRIC was coined by Jim O Neill, then chairman of Goldman Sachs in 2001. Foreign ministers of BRIC met in Sept, 2006 beginning a series of high level meetings,

followed by a full scale diplomatic meeting in June, 2009 In 2010, South Africa began efforts to join BRIC and the group was then renamed as

BRICS.

“Every nation on the Earth that embraces market economics and the free enterprise system is pulling millions of its people out of poverty. The free enterprise system creates prosperity, not denies it.” ~ Marco Rubio, US Senator Florida

BRICS is the acronym for an association of five major emerging national economies:

BRICS vs World(2015)“Potential of BRIC is such that they could become among the four most dominant economies by the year 2050” ~ Goldman Sachs in 2001

BRICS Moves Up in USD-Denominated GDP Ranking

BRICS – Growing Size Of economy1

BRICS Nation Economy (GDP) Ranking improved

4 BRICS nation to be amongst

top five

BRICS Moves Up in USD-Denominated GDP Ranking

The Growing Dominance of BRICS

BRICS – Growing Size Of economy1

2

BRICS Nation Economy (GDP -PPP) growing dominance over world

Around 40% of GDP (PPP)

contribution will be from BRICS

BRICS Moves Up in USD-Denominated GDP Ranking

BRICS – Growing Size Of economy

The Growing Dominance of BRICS

1

2

BRICs have become a key player in Global Trade Flows

3 Around 4500bn USD of Global trade by BRICS which is about 15% of total .

BRICS – AN INTRODUCTION

BRICS NATION ECONOMY & MONETARY POLICY BRAZIL RUSSIA INDIA CHINA SOUTH AFRICA BRICS : SWOT ANALYSIS CONCLUSION REFERENCES

BRICS – AN INTRODUCTION

BRICS NATION ECONOMY & MONETARY POLICY BRAZIL RUSSIA INDIA CHINA SOUTH AFRICA BRICS : SWOT ANALYSIS CONCLUSION REFERENCES

BRAZIL: ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

Largest Latin American economy. From 2000 up to 2012, Brazil was one of the fastest-growing major economies in the

world, with an average annual GDP growth rate of over 5%. Brazil's economic growth has decelerated in 2013 Recorded the sharpest fall in over six years in the second quarter of 2015 Economic activity contracted in August, 2015 and the manufacturing PMI fell to a six-

year-low in October, 2015 Investment is declining rapidly in 2015.

2010 2011 2012 2013 2014

Population (million) 195 197 199 201 206

GDP per capita (USD) 11,306 13,240 12,104 11,878 11,567

GDP (USD billion) 2,210 2,614 2,412 2,388 2,346

Economic Growth (GDP, annual variation in %)

7.6 3.9 1.8 2.7 0.1

Inflation Rate (CPI, annual variation in %)

5.0 6.6 5.4 6.2 6.3

Policy Interest Rate (%) 10.75 11.00 7.25 10.00 11.75

Exchange Rate (Real vs USD)

1.66 1.86 2.05 2.36 2.66

Exports (USD billion) 202 256 243 242 225

Imports (USD billion) 182 226 223 240 229

External Debt (% of GDP) 11.6 11.4 13.0 12.9 14.8

BRAZIL : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

Monetary Framework of BrazilMonetary Policy Committee

Central Bank Central Bank of BrazilLegal Entity/Committee Monetary Policy Committee, COPOM

Major MandatesAchievement of inflation targets set by the National Monetary Council (Government)

Monetary Policy Target indicator, timeframe and style

Point target of 4.5% with tolerance range of 2 percentage points for headline CPI (the IPCA index). Targets set every year for the following two years.

System of evaluation Headline CPIPolicy Implementation

Key policy rateSelic rate – interest rate on overnight interbank loans collateralized on federal debt instruments.

Standing facility(-ies) Lending and deposit facilities, 2 days

Reserve Ratios

42% on demand deposits.15% on time deposits15 to 20% on savings accountsRebates on reserve requirements for small andmedium-sized banks

Market Operations

FunctionsAdjust market liquidity to maintain the effective overnight interest rate close to the target.

Types of operations Repurchase agreements, using National Treasury securities as collateral

Maturities of operations

Shorter-term operations: 1 (more frequent) to30 working days.Longer-term operations: 5-month and 7-monthrepos.

BRAZIL : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

CHALLENGES

INFLATION:

• Consumer prices in October’15 increased 0.82% over the previous month.

• The print was above the 0.54% increase recorded in September and overshot market expectations of a 0.80% rise.

• The monthly result was mainly driven by higher prices for transportation, caused by a large increase in fuel prices, as well as for food and beverages

TECHNICAL RECESSION :

• GDP fell 1.9% in second quarter of 2015 over the previous quarter in seasonally-adjusted terms, which was a deterioration over the 0.7% decrease seen in the previous quarter.

• Private consumption dropped 2.1% over the previous quarter, which was down from the 1.5% decrease seen in the first quarter.

• Growth in exports of goods and services dropped from 16.2% in Q1 to 3.4% in Q2.

EXCHANGE RATE:

• Brazilian real’s (BRL) plunged to an all-time low in September’15

• The real fell to 4.18 BRL per USD, which represented a sharp 15.4% depreciation over the same day of the previous month in Sep’15

• Poor economic data and growing uncertainty

DECLINING EXPORTS:

• China has lost its growth impetus, taking with it a lot of the demand for the commodity-based Brazilian exports.

• Europe is growing weak as it digests the endless Greek crisis

• Commodity prices are dropping globally as China's economy evolves

BRAZIL : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

External Debt:

• Current account deficit of Brazil showed signs of improvement in September’15.

• CAD improved from USD 8.4 billion deficit to USD 3.1 billion.

• The trade balance registered a surplus of USD 2.9 billion in September, which was above August’s 2.7 billion surplus

• Brazil’s economy is in a griming condition with investor confidence low and declining exports.

• Rising inflation and political disturbances are creating pressure.

• Central Bank has less space to cut policy interest rate (SELIC rate).

• Exporters in Brazil, however, should get benefitted because a weaker local currency makes their products cheaper and thus more competitive abroad.

Positives Conclusion

Opinion

• The monetary framework should open itself to a more prudent base than inflation targeting since predicting inflation is becoming a challenge when the economic is export oriented and is dependent on the world economic conditions for its exports..

BRICS – AN INTRODUCTION

BRICS NATION ECONOMY & MONETARY POLICY BRAZIL RUSSIA INDIA CHINA SOUTH AFRICA BRICS : SWOT ANALYSIS CONCLUSION

RUSSIA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

2010 2011 2012 2013 2014Population (million) 143 143 143 144 144GDP per capita (USD) 10,673 13,192 14,289 15,340 14,099GDP (USD bn) 1,525 1,886 2,048 2,204 2,026Economic Growth (GDP, annual variation in %) 4.5 4.3 3.4 1.3 0.6Consumption (annual variation in %) 5.5 6.8 7.8 5.0 1.3Investment (annual variation in %) 5.9 10.2 5.6 0.9 -2.0Industrial Production (annual variation in %) 7.3 5.1 3.4 0.4 1.6Retail Sales (annual variation in %) 6.2 6.9 6.5 3.9 2.7Unemployment Rate 7.5 6.6 5.5 5.5 5.2Fiscal Balance (% of GDP) -3.9 0.8 0.0 -0.7 -0.6Public Debt (% of GDP) 9.0 9.5 10.5 11.4 14.4Money (annual variation in %) 31.1 22.3 11.9 14.6 2.3Inflation Rate (CPI, annual variation in %, eop) 8.8 6.1 6.5 6.5 11.4Inflation Rate (CPI, annual variation in %) 6.9 8.4 5.1 6.8 7.8Inflation (PPI, annual variation in %) 16.7 12.0 5.1 3.7 5.9Policy Interest Rate (%) 5.00 5.25 5.50 5.50 17.00Stock Market (annual variation in %) 22.5 -21.9 10.5 -5.5 -45.2Exchange Rate (vs USD) 30.48 32.02 30.48 32.73 56.26Exchange Rate (vs USD, aop) 30.36 29.67 30.36 30.03 35.24Current Account (% of GDP) 4.6 5.2 3.5 1.5 2.9Current Account Balance (USD bn) 70.3 98.8 71.3 34.1 59.5Trade Balance (USD billion) 147 197 192 182 190Exports (USD billion) 393 515 527 523 498Imports (USD billion) 246 319 336 341 308Exports (annual variation in %) 32.1 31.3 2.3 -0.8 -4.9Imports (annual variation in %) 33.6 29.7 5.4 1.7 -9.8International Reserves (USD) 479 499 538 510 385External Debt (% of GDP) 32.1 28.9 31.1 33.1 29.5

•Russia contains over 30 percent of the world's natural resources.•In 2014, Russian economy was the sixth largest in the world by PPP and tenth largest at market exchange rates.

RUSSIA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

Monetary policy in Russia in the period 2000-2015 can be divided into several stages.

Monetary policy in this period is characterized by a rapid increase of money mass and of foreign currency reserves and high rates of economic growth.

Main efforts of the Bank of Russia and Russian government had been made to overcome a severe economic crisis.

This phase is characterized as a partial return to the previous policy but in more moderate scale.

Bank of Russia began to implement the inflation targeting.

External instability forced the Bank of Russia to make some changes in its current policy.

Until 2008

Q4,2008-2009

2010-2011

2012

Since Q4 2014

RUSSIA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

Highlights of first stage until 2008-•Nominal interest rates of bank loans to businesses decreased four times to 11 % in 2008.•The bank loans to companies increased sevenfold and reached 29 % of the GDP in 2008.•Monetization of Russian economy increased to 34 % at the end of 2007.•Real cash balance increased by 4 times (since 2000 to 2009)

Monetization of Russian economy: money mass and bank loans to business as a % to GDP, 2000-2014 (seasonally adjusted)

Monetization of Russian economy: real cash balance and bank loans to business indexes, Q2 2000 = 1 (seasonally adjusted)

RUSSIA : ECONOMY & MONETARY POLICY

Highlights of first stage until 2008-•Rapid increase of money mass (by 23.5 times or 42 % annually in 2000-2008) led to abnormally high inflation.•Average annual increase of the GDP deflator was 18.7 % while that of CPI was 13.9 %.•Inflation was high in spite of real ruble appreciation and decrease of real prices of ‘tradable’ goods.•Due to high inflation the real interest rates remained negative.•Dollar lost 75 % of its real value in Russian market since 1999 to 2008.

Deposit, loans and interbank real interest rates 2000-2014 (seasonally adjusted)Indexes of export and import real ruble prices and of real dollar rate, 1999-2014 (seasonally adjusted; Q1 1999 = 1)

ECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

RUSSIA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

Highlights of second stage 2008-09 crisis and after-•GDP decline by 8 % due to 48 % price drop on Russian export goods and ruble devaluation by 45 %.•Ruble devaluation lead to 30 % jump of (ruble) import prices and external debt increase from 23 % to 37 % of the GDP.•Heavy blow to Russian economy - Capital flight equal to $133 billion (5 % of the GDP) in 2008-2009.

International reserves and external debt of Russian Federation, $billion, 2003-2015 (seasonally adjusted)

Trade balance, current account and balance of payments, $million, 1999-2014 (seasonally adjusted)

RUSSIA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

Highlights after year 2012-•Bank of Russia began to carry out a restrictive monetary policy to reduce inflation.

• Increased gradually the reserve requirement from 1 % in May 2009 to 4.25 % for all items of banks’ liabilities in March 2013.

• Reversed its policy on foreign exchange market and started massive sales of foreign currency.• Introduced a new rate – a “key rate” – in Sept’13 and began to carry out the majority of

operations in accordance with it.•Results of above steps-

• Annual growth rate of money mass decreased from 22 % in 2009-2011 to 9 % in 2012-2014.• Real cash balance decreased from 9 % in 2009-11 to 6 % in 2012-14.• Annual rate of the GDP deflator decreased from 15.0 % in 2010-2011 to 6.4 % in 2012-2014.• CPI decreased from 7.2 % in 2010-11 to 6.7 % 2012-14.• Households’ consumption increased by 15.3 % in real terms in 2012-2014.• Ruble real exchange rate remained stable until the H1 2014.

Major macroeconomic indicators: indexes of real growth, 1999-2014 (seasonally adjusted; Q1 1999 = 1)

Indexes of export and import real ruble prices and of real dollar rate, 1999-2014 (seasonally adjusted; Q1 1999 = 1)

RUSSIA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

Highlights after H2 2014-•Due to political events and sudden drop of export prices (by 43 % in dollar value since Q2 2014 to Q4 2014)-

• Balance of payment dropped to negative $87 billion in 2014.• Ruble devaluated by 87 % since 2013 average to Q1 2015.• International reserves declined by 33 % from $537 billion on the January 1st 2013 to $360 on

the March 1st 2015.•In December 2014 the Bank of Russia declared a transition to flexible ruble rate and limitation of foreign currency interventions.

International reserves and external debt of Russian Federation, $billion, 2003-2015 (seasonally adjusted)

RUSSIA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

Challenges faced by Russia in -•Major agencies lowered Russian ratings to non-investment levels.•Foreign borrowings were reduced to zero by the end of 2014 due to sanctions that limited access of Russian companies to world financial markets and to oil price decline.•At Q4 2014 the cost of foreign borrowing increased to prohibitive level.•Debt refinancing ratio for Russian companies fell from 100 % in H1 2014 to 62 % in Q3 2014.

RUSSIA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY GROWTH PLANCHALLENGES

Challenges faced by Russia in -•Major agencies lowered Russian ratings to non-investment levels.•Foreign borrowings were reduced to zero by the end of 2014 due to sanctions that limited access of Russian companies to world financial markets and to oil price decline.•At Q4 2014 the cost of foreign borrowing increased to prohibitive level.•Debt refinancing ratio for Russian companies fell from 100 % in H1 2014 to 62 % in Q3 2014.

Steps taken by Russia to overcome above challenges-•Bank of Russia increased the key rate to a record level of 17 % in December 2014.

• This lead to increase in nominal interest rates by two times causing a liquidity shortage worsened by foreign financial sanctions and panic on foreign currency market.

•Further, In order to avoid the credit crunch the Bank of Russia began to provide banks with liquidity in growing volumes and was forced to decrease the key rate to 15 % in February and to 14 % in March 2015 and to 12.5 % in May 2015.•The government issued new bonds on total 1 trillion rubles (1.4 % of the GDP) and allowed to spend a part on National Welfare Fund reserves for banking system recapitalization.•Minimum level of deposit insurance was doubled on December 29th 2014 (to 1.4 million of rubles that is approximately equal to $27500 now).

Conclusion:Russian economy has some margin of safety to survive in hard times. But it needs deep structural reforms to avoid such type of problems in future.

BRICS – AN INTRODUCTION

BRICS NATION ECONOMY & MONETARY POLICY BRAZIL RUSSIA INDIA SOUTH AFRICA CHINA

BRICS : SWOT ANALYSIS CONCLUSION REFERENCES

INDIA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

A legacy of the British Empire is that India has

one of the largest English speaking populations in

the world. For labour intensive industries like call centres India is an

obvious target for outsourcing. This is an

economic development likely to continue in the

future.

The infrastructure of India is so bad in places that

even moderate improvements could lead

to significant improvements in the

productive capacity of the economy.

India still has a positive birth rate meaning that

the size of the workforce will continue to grow for the foreseeable future. (unlike India) A rising

workforce helps to increase saving and investment. It also enables increased

productivity.

India has the one of fastest growing service sectors in the world with annual growth rate of above 9% since 2001, which contributed to 57% of GDP in 2012-13. India has capitalized its economy based on its large

educated English-speaking population to become a major

exporter of IT services, BPO services, and software services

with $167.0 billion worth of service exports in 2013-14.

INDIA: ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

ObjectivePrimarily price stability, while keeping in mind the objective of growth.

Inflation targeting frameworkThe agreement on Monetary Policy Framework between the Government and the Reserve Bank of India dated February 20, 2015 defines the price stability objective explicitly in terms of the target for inflation – as measured by the consumer price index-combined (CPI-C) – in the near to medium-term, i.e., (a) below 6 per cent by January 2016, and (b) 4 per cent (+/-) 2 per cent for the financial year 2016-17 and all subsequent years.

MONETARY POLICY

INDIA: ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

MONETARY POLICY TRANSMISSION MECHANISM

Cash Reserve Ratio

• The share of net demand and time liabilities (deposits) that banks must maintain as cash balance with the Reserve Bank.

Statutory Liquidity Ratio

• The share of net demand and time liabilities (deposits) that banks must maintain in safe and liquid assets, such as, government securities, cash and gold. Changes in SLR often influence the availability of resources in the banking system for lending to the private sector.

Liquidity Adjustment

Facility

• Consists of overnight and term repo/reverse repo auctions. Progressively, the Reserve Bank has increased the proportion of liquidity injected in the LAF through term-repos

INDIA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

CHALLENGESEMPLOYMENT & GROWTH:

Although India has benefited from a high % of English speakers. (important for call centre industry) there is still high levels of illiteracy amongst the population. It is worse in rural areas and amongst women. Over 50% of Indian women are illiterate. This limits economic development and a more skilled workforce.

BOP :The large deficit caused the depreciation in the Rupee between 2012 and 2014. Whilst the deficit remains, there is always the fear of a further devaluation in the Rupee. There is a need to rebalance the economy and improve competitiveness of exports.

INFLATION :Fuelled by rising wages, property prices and food prices inflation in India is an increasing problem. Inflation is currently between 8-10%. This inflation has been a problem despite periods of economic slowdown. For example in late 2013, Indian inflation reached 11%, despite growth falling to 4.8%. This suggests that inflation is not just due to excess demand, but is also related to cost push inflationary factors.

SLOWDOWN IN GROWTH:

2013/14 has seen a slowdown in the rate of economic growth to 4-5%. Real GDP per capita growth is even lower. This is a cause for concern as India needs a high growth rate to see rising living standards, lower unemployment and encouraging investment. India has fallen behind China, which is a comparable developing economy

INDIA: ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

The proposed interventions aim to eliminate poverty and reduce inequality by 2020 by expanding economic opportunity for all by:

Increased Domestic and Foreign Investment : Accelerating economic growth will require jumpstarting India’s investment rate. In order to achieve 10% or higher growth, India needs to increase investment to 40-45% of GDP from 30% currently and 37% at its height in FY09, through a significant increase in the domestic savings rate, increased FDI, lower inflation (through monetary policy), and increased financial intermediation.

Increased Productivity : India’s productivity growth, which has slowed from 5.8% to 2.4% in the last two to three years (well below the 7-7.5% levels which China was able to achieve, will need to increase by 5% through a combination of structural reforms and administrative and executive actions, with priority given to increasing agricultural productivity and transitioning the workforce into industry and services.

Growing the Labour Force : Most importantly, India needs to create high-quality jobs for the additional 250m people who will enter the labour force, including 30 million new jobs within the first two years, through investments in manufacturing, infrastructure and agriculture, with priority given to driving employment for women, who at 38% labour participation in India are among the most marginalised of any major country.

GROWTH PLAN

BRICS – AN INTRODUCTION

BRICS NATION ECONOMY & MONETARY POLICY BRAZIL RUSSIA INDIA CHINA SOUTH AFRICA BRICS : SWOT ANALYSIS CONCLUSION REFERENCES

CHINA: ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

China is the largest trading nation in the world and

plays a vital role in international trade, and has

increasingly engaged in trade organizations and treaties in recent years.

China became a member of the

World Trade Organization in 2001.

Until 2015 China was the world's

fastest-growing major economy

, with growth rates averaging 10%

over 30 years. Due to historical and political facts

of China's developing economy, China's public sector accounts for more

share in the national economy with the

burgeoning private sector.

China is a global hub for manufacturing, and is the

largest manufacturing economy in the world as

well as the largest exporter of goods in the world..

On a per capita income basis, China ranked

77th by nominal GDP and 89th by GDP (PPP) in 2014,

according to theInternational

Monetary Fund (IMF).

CHINA: ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

ObjectiveAchieve and maintain price stability in the interest of sustainable and balanced economic development and growth

Inflation targeting frameworkInsights into the role and activities of the People’s Bank of China (PBoC or Central Bank) are critical to successfully navigating China’s markets, and maximizing the opportunities in this relatively new investment landscape.

MONETARY POLICY

CHINA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

MONETARY POLICY TRANSMISSION MECHANISM

. The PBoC’s policy is evolving in ways that should reduce the risk of volatility spikes, including adding

new provisions for lending to banks in times of stress, similar to the

‘discount window’ facilities offered by other major central banks.

The Standing Lending Facility (SLF), introduced last year, offers one- to three-month loans to banks on request, while

Pledged Supplementary Lending (PSL) can be initiated by the PBoC, offering funds

over a three-month to five-year horizon.

CHINA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

CHALLENGESECONOMY & GROWTH:

China's economy is slowing and this isn't temporary it reflects "the market's direction". This means that "companies will face losses to the point of bankruptcy" and the pressure on employment will rise.

REBALANCING:China faces 4 major shifts the shift from external demand to domestic demand, from investment driven growth to consumer-led growth, shift from government investment to private investment, and finally from "traditional elements of production to advanced elements of production". China needs to promote this to maintain the pace of economic growth. "Japan and Latin America have gone through this transformation, but they did not do well and fell into the "middle-income trap" or the "high-income trap." We also face this challenge."

LONG TERM INFLATION:Chinese consumer price inflation has gone from 6.5 percent in 2011, down to 2.2 percent in June 2012. Inflation is an intermediate to long-term problem for China which means the country needs to increase its "tolerance" for and "resilience" to inflation.

INTERNATIONAL ENVIRONMENT:The global economic slowdown is likely to persist for another two or three years, and will be a blow to Chinese exports. Moreover, "the international environment for China's overseas investments is deteriorating" because countries don't trust the Chinese and suspect they will steal their technologies or are doing it to control their resources. Third, western countries are pushing to undermine Chinese competitiveness by calling for renminbi appreciation, which impacts the international environment for adjusting the exchange rate.

CHINA: ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

The proposed interventions aim to eliminate poverty and reduce inequality by 2020 by expanding economic opportunity for all by:

Central bank actionThe People's Bank of China could lower interest rates, making it cheaper to take out loans. It can also cut the amount that banks are required to keep on reserve.

Infrastructure investmentDespite rapid urbanization, China still needs more infrastructure -- roads, highways, subways, water supply, healthcare and more."Such infrastructure investment can improve overall returns to an economy's physical and human capital, and typically happens during -- not after -- a country's period of rapid development and industrialization”.

Political fireworksThe Chinese Communist Party Central Committee will meet this fall to approve its five-year plan for 2016 to 2020.If the central government can come up with effective policy recommendations from the meeting -- or even give the appearance of doing so -- there's a chance that it will restore confidence in growth.

GROWTH PLAN

BRICS – AN INTRODUCTION

BRICS NATION ECONOMY & MONETARY POLICY BRAZIL RUSSIA INDIA CHINA SOUTH AFRICA BRICS : SWOT ANALYSIS CONCLUSION REFERENCES

SOUTH AFRICA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

POSITIVE OUTLOOK

• In its 2012-13 Global Competitiveness report, the World Economic Forum ranked South Africa second in the world for the accountability of its private institutions, and third for its financial market development

DIVERSITY & GROWTH

• South Africa has a diverse economy, with key sectors roughly contributing to GDP* as follows:Agriculture:Mining:Manufacturing:Electricity and water:Construction:Wholesale, retail and motor trade:Transport, storage and communication:Finance, real estate and business services:Government services:Personal services

GREEN ECONOMY

• In 2011, the government entered into the Green Economic Accord, which aims to create 300 000 jobs in the next 10 years through investment in the green economy. In 2012, the Treasury allocated R800-million over two years to the Green Fund, which aims to provide finance for high-quality, high-impact, job-creating green economy projects around the country.

INFRASTRUCTURE

• In a massive public-sector investment, South Africa has spent R642-billion on infrastructure development in the past thee years – and plans to spend more than R827-billion over the next three years to improve access to export markets and reduce costs in the economy.

INVESTORS

• The overall investment environment remains encouraging. A G20 country, South Africa is considered a low-risk investment destination for investors looking for a foothold into Africa. As the continent’s largest African investor, South Africa sends more than 25% of its manufactured products into the continent.

RATINGS

• In January 2013, Fitch, the ratings agency, cut South Africa’s sovereign credit rating by one notch to BBB. It said it had revised its outlook because of subdued growth prospects, which it believed would affect public spending and exacerbate social and political tensions.

SOUTH AFRICA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

Objectiveachieve and maintain price stability in the interest of sustainable and balanced economic development and growth

Inflation targeting frameworkcentral bank announces an explicit inflation target and implements policy to achieve this target directly

Target and Resultsthe inflation target ,specified as a range or band of achieving an average rate of increase in consumer prices

MONETARY POLICY

SOUTH AFRICA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

MONETARY POLICY TRANSMISSION MECHANISM

Source: Box 3, Monetary Policy Review, May 2004

SOUTH AFRICA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

CHALLENGES

EMPLOYMENT & GROWTH:

• Growth, Employment and Redistribution (GEAR) - central economic programme.

• Growth- a snail's pace compared with other emerging markets.

•Unemployment 24%, - jobs seen as the biggest concern among young South Africans

MINING :

•Strikes on South African mines have damaged output, particularly in the platinum sector.

•The inability to resolve the crisis has reflected poorly on the country.

•South Africa has fallen in the rankings of gold producers from number one in the world to number four.

COST OF LIVING :

•Currency, lost 20% of its value, largely due to the withdrawal of stimulus in the US.

•Pushing up the price of goods, and South Africans are now paying much more for food, housing and transport.

•If the situation worsens the Reserve Bank will have to hike interest rates in order to support the currency. In turn consumer spending will slow down.

DELIVERY SERVICE :

•Fewer than 20 municipalities out of 284 have a clean balance sheet. This has resulted in failure to provide water, electricity, housing and schooling in many areas.

•In recent years, that has spurred on hundreds of service delivery protests in townships, where the poor, black masses live, and where most of the country's unemployed population are likely to be found.

SOUTH AFRICA : ECONOMY & MONETARY POLICYECONOMY MONETARY POLICY CHALLENGES GROWTH PLAN

The New Growth Plan, launched in November 2010, builds on plans to restructure the economy to ensure more inclusive and sustainable growth – and sets a target of creating five million new jobs by 2020.

The road map to do this is provided by the Industrial Policy Action Plan, which proposes multisectoral interventions across agriculture, mining, manufacturing, tourism and other high-level services to create substantial employment.

South Africa’s dream of growing an inclusive economy by drawing on the energies of its people is given voice through the National Development Plan 2030, launched in August 2012.

The proposed interventions aim to eliminate poverty and reduce inequality by 2030 by expanding economic opportunity for all by:

Investing in and improving infrastructure, as well as supporting industries such as mining and agriculture

Enacting reforms to lower the cost of doing business

Strengthening links to faster-growing economies

Diversifying exports

Reducing constraints to growth in various sectors

NEW GROWTH PLAN

BRICS – AN INTRODUCTION

BRICS NATION ECONOMY & MONETARY POLICY BRAZIL RUSSIA INDIA SOUTH AFRICA CHINA

BRICS : SWOT ANALYSIS CONCLUSION REFERENCES

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS

BRICS – SWOT ANALYSIS

• GROWTH STORIES IN TOUGH TIMES

• INTERNAL PURCHASING DEMAND WITHIN BRICS

• TENDENCY TO TRADE IN THEIR NATIONAL CURRENCIES

• TREATED AS JUNIOR PARTNERS BY EMERGED ECONOMIES

• SCARCE OVERLAPPING AND COLLECTIVE FOREIGN POLICY AGENDAS

• GROWING ABILITY TO ACT ALONE AND COLLECTIVELY

• AMPLE ROOM TO RESTRUCTURE THEIR ECONOMIES TO BE MORE COMPETITIVE GLOBALLY

• TOOLBOX OF FISCAL AND MONETARYOPTIONS UNLIKE THEIR EMERGED WESTERN PEERS

• WESTERN MISMANAGEMENT OF THEIR ECONOMIES

• OBVIOUS POLITICAL DESIRE OF INDIVIDUAL BRICS NATION TO ACT OUT ALONE

BRICS – AN INTRODUCTION

BRICS NATION ECONOMY & MONETARY POLICY BRAZIL RUSSIA INDIA SOUTH AFRICA CHINA

BRICS : SWOT ANALYSIS CONCLUSION REFERENCES

CONCLUDING THOUGHT

• The current global economic and financial order is undergoing irreversible change because it is exhausted and out of new ideas. •The BRICS are not forcing this change; they are embracing it and adapting to this change accordingly.

•The BRICS will rarely act together toward particular foreign policy goals, but count on them to all collectively demand the global economy truly serve the interests of consumers in the global marketplace. Each member of the BRICS have specific and diverse characteristics, but their interest toward a more equitable global economic order is all but universal among them.

BRICS – AN INTRODUCTION

BRICS NATION ECONOMY & MONETARY POLICY BRAZIL RUSSIA INDIA SOUTH AFRICA CHINA

BRICS : SWOT ANALYSIS CONCLUSION REFERENCES

REFERENCES

• Brazil’s Economic Indicators, World Bank, http://data.worldbank.org/country/brazil• Overview of Brazil’s Economy, World Bank, http://www.worldbank.org/en/country/brazil/overview#1• Copom Minutes, Central Bank of Brazil, http://www.bcb.gov.br/?COMMITTEE• Brazil – A summary, The Economist, http://country.eiu.com/brazil• Monetary Framework of Brazil, Bank of International Settlements,

https://www.bis.org/• BRICS overview, BRICS official website, http://en.brics2015.ru/• Bank of Russia, Official Internet Site, http://www.cbr.ru, 2015• Institute for National Economy Forecasting (RIM group),”

http://www.macroforecast.ru, 2014• International Energy Agency (2014), Russia 2014

http://www.iea.org/Textbase/npsum/ russia2014sum.pdf• International Monetary Fund, official site http://www.data.imf.org (2015)• World Bank (2014), Russian Economic Report N.32, September 2014 https://

www.worldbank.org/en/country/russia/publication/russian-economic-report-32• World Bank (2015), Russian Economic Report N.33, April 2015

http://www.worldbank.org/ content/dam/Worldbank/document/eca/russia/rer33-eng.pdf

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