At the South African Reserve Bank’s (Sarb’s) last Monetary Policy Committee (MPC) meeting on May 19 2016, five out of your six members voted in preference of keeping interest levels unchanged. This, after raising the repo rate to 7% within the previous meeting in March as soon as the shock 7% CPI inflation print in February.
If we clinically focus only around the last retail sales number, which printed in an explosive 4.5% year-on-year (y/y) increase in May, a good deal inflation may be more than Sarb’s target 6% upper band, i would expect the Reserve Bank to get rates of interest when the MPC meets today. However, we got recent inflation consistently retreat right down in order to six.1% in May, along with the expectation would be that the June release on Wednesday may fall below 6%.
Whereas before, the Sarb seemed stuck between high inflation and low GDP growth – the analogous monetary policy rock as well as a hard place – not less than now inflation seems to be trending lower. CPI inflation may not be comfortably from the target 3% to 6% band, consider before Lesetja Kganyago became governor, the Reserve Bank has worked towards adopting a more flexible inflation-targeting mandate.
What industry will be devoted to after Thursday’s meeting is the narrative implication from Kganyago. The expectation could be that he not always insist that we’re in the rising rate of interest environment and hubby will rather pick a more dovish stance considering concerns for a global recession, pursuing the surprise June 23 Brexit outcome. The questions still remain around how confident they are that influencing factors are usually in his favour.
In an address to your Bundesbank Regional Office on July 7, deputy governor Daniel?Mminele pointed out that: “The South African Reserve Bank operates inside of a flexible inflation-targeting framework, this requires carefully-calibrated policy decisions. These decisions have to appropriately take account of the evolving international and domestic economic and markets environment.”
Overseas markets
Immediately following Brexit, on July 5, Bank of England (BoE) governor Mark Carney, cut the countercyclical capital rate to zero, claiming it has “more immediate power” as opposed to BoE’s quantitative easing programme. Inside a non-sequential move soon after, the BoE left united kingdom repo rate unchanged, but produced a reason for letting the market are aware that we might expect a well-considered “package” of stimulus measures to remain launched in August.
On Wall Street, the post Brexit expectation of the usa Fed raising rates changed significantly, using the possibility of a hike next three months falling to 0%. In Japan, the landslide victory for Shinzo Abe’s Liberal Democratic Party inside the upper house elections a week ago, has provided this market comfort that there shall be continued economic stimulus eminating from the Bank of Japan.
When considering market expectations for major global central banks, you would have it misaligned for any Sarb to stay raising loan rates.
However, our ‘lucky break’ cannot last forever and, over the back on the IMF downgrading South African GDP growth on July 6 from 0.6% to 0.1%, we still need an essential issue to overcome: that relate to stunted economic growth. Designed to cure ., Mminele said from the same speech, that ” while policy decisions need to be understanding of growth dynamics, in addition they must take into account that monetary policy cannot address structural deficiencies holding back the economy”. In the end seem narrowly escaping a stagflationary environment – academically looked as low growth, high inflation and unemployment – the pressures remain.
The ratings agencies have unequivocally asserted that they’re searching for economic growth, if the Sarb feels safe enough not to ever improve the repo rate, then the shifts the main focus from Thursday’s MPC meeting to some more immediate requirement for the implementation of pro-active growth measures to further improve economic growth.
Anthea Gardner is managing partner at Cartesian Capital.
