The SARB has probably a few elementary wishes for 2007, will face many unpredictable events, and has really only one major policy instrument (repo-rate) at its disposal with which to act.

It looks unlikely that CPIX inflation will breach the 6% upper boundary of its two-year target zone decisively, if at all. At most it is expected to do so only temporarily, before falling back into the target range.

With the SARB having already raised interest rates by 2% in 2006, average real interest rates during 2005-2008 are unlikely to show much fluctuation, even if there were to be no more rate changes.

If the policy action to date were to be enough to address any lift in inflationary expectations and neutralize any additional growth stimulus from trade-weighted Rand weakness in 2006 (reportedly in the 15% range), the SARB may well favour doing not much more policy-wise in 2007.

These developments to date should contain inflation while ensuring a gradual change in growth composition, away from consumption in favour of net exports. Meanwhile infrastructure expansion should become the main force bolstering fixed investment expansion, thus maintaining the overall strong GDP growth of recent years.

Only new events could then presumably still sway the SARB, particularly events blasting oil prices and the Rand higher or weaker (unless such events were to miraculously balance each other out).

But in the absence of such new events, and with inflation shortly to touch 6% before falling back again (assuming the domestic economy remains on its best behaviour, as it now has been for years), it should seriously be asked why the SARB or anyone else would want to decisively brake the country's strong growth momentum of 5%.

For the first time in years we are growing formal employment at 300 000 annually, expanding the middle class and structurally changing for the better. Anyone wanting to interrupt such economic and social progress by way of much higher interest rates should better have excellent reasons for doing so.

Only higher inflation potential would really qualify as an acceptable reason. That itself would call into question our new growth potential. This is an area apparently marked by much uncertainty as the expanding labour force keeps learning-through-doing, fixed investment keeps expanding rapidly, and government keeps focusing on easing some of the binding constraints preventing faster growth.

As to the balance of payments, with its disappointing export performance, surging imports and over-reliance on portfolio capital inflows, the first and only solution to its implied exposures shouldn't be the ham fisted one of cutting back overall economic growth, but the obvious one of undertaking action to strengthen the balance of payments structurally.

That means less export handicapping (especially mining), fewer infrastructure bottlenecks, more foreign reserve accumulation, less currency overvaluation, and more of a fiscal contribution to encourage higher savings levels.

Only if these measures were to prove inadequate (something yet to be shown decisively), would there be no other way but for the SARB's heavy artillery to be rolled out to kill growth and make the balance of payments less exposed to disruptive global financial events.

Meanwhile, in a world still maintaining good growth while undergoing a mild mid-cycle slowing, in which our export potential remains well supported, commodity prices should continue to do well even as the speculative froth is being removed, and foreign capital remains generously accessible, we would do well to attempt gradual change with a minimum of shock treatment.

It may well be that the SARB wouldn't mind a somewhat weaker Rand, providing it with an inflation-linked reason for modestly further raising interest rates in 2007, thereby assisting the rotation in growth composition, ensuring a slightly more rapid shift away from consumption in favour of net exports.

It could well be that the SARB wouldn't mind overly much to encounter minor global events weighing on the Rand and yielding such an outcome. For such a development and the accelerated rotation it allows would ultimately reduce the risks we are currently running in a financial sense, and therefore ultimately to the growth outlook, exposed as we are to major global surprises.

But it isn't as if the SARB has many degrees of freedom allowing it to intervene independently on this score off its own bat, as unexpected consequences could result, in terms of the Rand's value and foreign capital flows, potentially more than negating the SARB's actions and intentions.

When it comes to our external finances and the Rand, much depends on global forces and how these choose to respond to our economic performance and policy configuration, something we can only hope to influence imperfectly. Caution in macro-policy moves is therefore warranted rather than misplaced.    

As things stand, strong economic growth is not something to be deplored first and foremost or in its own right. What should be deplored are our structural shortcomings endangering growth in the medium-term.

We shouldn't simply shoot the growth patient out of hand, insulating the balance of payments from the consequences of growth at all cost. Instead, we should collectively favour addressing any shortcomings on the balance of payments, strengthening its structure.

This implies a carefully considered mix of actions focusing on bolstering exports and allowing consumption-driven imports less undue advantage via an overvalued Rand. So far this seems to remain the SARB's intention as well, as presumably it is of the government, too.

It is the combination of continuing strong overall growth, change in growth composition (rotation) and less trade handicapping that may optimally safeguard the financial environment against disruption under present global conditions.   

Financial markets also seem to discount this outcome as the central outlook in their future pricing expectations.