9 May 2012
There is currently little room for a cut in interest rates, with South Africa’s inflation at the upper end of its target range, says Reserve Bank Governor Gill Marcus.
“The current monetary policy stance is accommodative because of the persistence of the negative output gap,” Marcus told the the Swiss Chamber Southern Africa in Zurich on Monday.
“However, the expected inflation trajectory suggests that there is limited, if any, room for further monetary accommodation at this stage.”
At 5.5% for the past 16 months, the Reserve Bank’s key repo rate is at its lowest in over 30 years. South Africa’s inflation target range is between 3% and 6%.
Global concerns always a factor
“It is important to bear in mind, however, that this view is conditional on no significant adverse changes in the other factors that the MPC [the Reserve Bank’s monetary policy committee] takes into consideration when determining the stance of monetary policy,” Marcus said.
“These include the domestic growth outlook and the continuing global fragility.”
In March 2012, South African consumer inflation eased to 6%. The central bank expects it to return to within the 3-6% range by the end of 2012 on a “sustainable basis”, after which inflation is expected to remain close to the upper end of the range “for some time”.
Marcus noted that capital inflows had caused greater volatility in currencies in emerging markets such South Africa than before, noting that extreme volatility brought about by excessive capital flows created problems for macroeconomic management.
Reserve Bank ‘does not target a level for the rand’
On the issue of the exchange rate, Marcus said the Reserve Bank did not target a level for the rand.
“There is an incorrect perception that the Reserve Bank attempts to keep the exchange rate strong in order to help with inflation. There is no doubt that an appreciating currency would have a moderating impact on inflation,” Marcus said.
“But in order to sustain this moderating impact, the exchange rate would have to have a continuously appreciating trend, which is clearly undesirable and not feasible.”
The Reserve Bank’s next decision on interest rates is expected following its monetary policy committee meeting on 24 May.