25 Jul 2019
Lesetja Kganyago, the newly reappointed governor of the South African Reserve Bank, has initiated a broader discussion on what can be done to boost growth without focusing solely on monetary policy.
When speaking in a lecture at the University of South Africa, Kganyago explained that interest rates were not solely accountable for growth, while stating that the bank’s Monetary Policy Committee (MPC) was not responsible for the creation of growth.
He said: “There is a healthy debate about where exactly we need to go with the repo rate. But we see no monetary policy stance that would single-handedly transform South Africa’s prospects.
“And as our economic circumstances get more difficult, I worry that more people will choose to avoid making hard choices and pretend they do not need to be made, as if the Sarb could just cut rates enough and all will be well.”
He also pointed out that the central bank’s maintenance of a “credible monetary policy and a short-term interest rate” had helped keep capital flows into South Africa.
This follows the MPC’s decision last week to cut the benchmark repo rate for the first time since March 2018, in an effort to improve on demand in the economy.
Statistics South Africa (StatsSA) revealed that the country’s annual inflation stood at 4.5%, remaining unchanged.
“South African inflation remained at the 4.5 percent midpoint of the target range in June, which strengthens our view that policymakers will follow up this month’s 25 basis points rate cut with another one in September,” said John Ashbourne, senior emerging markets economist at Capital Economics.
According to NKC African Economics economist Elize Kruger, inflation data indicated that South Africa’s consumer price were stable and contained.
“Given the moderate inflation outlook and dismal economic growth prospects for 2019, a further 25-basis points cut in the second half of 2019 could be fully justified, but not a firm call, as the Sarb signalled that any further monetary policy loosening will be data dependent,” Kruger said. - Iol.co.za reports.