Changing Patterns of Financial Intermediation : Implications for Central Bank Policy

South Africa has attracted substantial inflows of foreign capital since the 2008 global financial crisis, but this has not coincided with or resulted in major changes in financial intermediation – including in the shadow banking sector. Instead, debt growth has been concentrated in the public sector: the government debt ratio has nearly doubled since the crisis albeit at relatively low levels, with a threefold increase in non-resident holding of rand-denominated government bonds, contributing to the financing of widening fiscal and current account deficits. Private sector credit growth, by contrast, has stagnated amid stricter bank lending criteria and balance sheet consolidation by households. Although the shadow banking system has expanded, this increase has come at the expense of the banks, and remains relatively small. South Africa's vulnerability to global monetary shocks has been reflected primarily in the widening of the twin deficits. The more recent monetary policy response has been a gradual tightening cycle, complemented by fiscal consolidation.Full publication: "http://ssrn.com/abstract=2692232" What Do New Forms of Finance Mean for EM Central Banks?