South Africa’s economy is in a low-growth trap and the central bank is unable to assist its recovery, according to governor Lesetja Kganyago.
“We are concerned about what has been happening with the growth outlook,” Kganyago said in a interview with Bloomberg TV at the Group of 20 meetings in Chengdu, China, on Saturday.
“The slowdown in the economy has nothing to do with technical factors that have to be dealt with by monetary policy. The slowdown in growth has to do with structural impediments.”
The Reserve Bank’s Monetary Policy Committee left the benchmark repurchase rate unchanged at 7% on 21 July as it slashed its 2016 growth forecast for Africa’s most industrialised economy to 0%.
The nation’s economic outlook has deteriorated due to weak export demand, the worst drought in more than a century, low commodity prices, and most recently, the UK’s vote to quit the European Union. The MPC raised the key rate by 125 basis points since last July to steer inflation back toward its 3-6% target band.
The rand has strengthened by 8% against the dollar this year after losing 26% of its value in 2015.
Inflation below forecasts gave the central bank room to pause its interest rate increase cycle, Kganyago said.
While price growth could surprise to the downside if the rand sustains its recent strength, the central bank stands ready to act on interest rates if necessary, he said.
Inflation quickened to 6,3% in June and will probably return to the target band in the third quarter of next year, according to central bank forecasts.
If a high inflation rate becomes the norm, observers may think the central bank is happy to tolerate price growth outside the target range, Kganyago said. — (c) 2016 Bloomberg LP
