The Reserve Bank has warned that the South African economy will deteriorate in the short- to medium-term before conditions improve.The bank’s comments came via researcher David Fowkes during a presentation of the latest Monetary Policy Review (MPR) in East London this week.
Bank officials also said public sector wage increases were fuelling high inflation.
Fowkes said the bank was in a “gradual hiking cycle”, which had started in January this year.
After two increases to the repo rate his year, South Africans could expect further increases as the bank intensified efforts to stabilise the economy against international developments.
Colleague Rashid Cassim was more forthright: “The central bank wants to warn you: These low interest rates are not here to stay – gear up for an increase in interest rates. Obviously we don’t increase for the sake of increasing but if there’s an inflationary threat. If there’s no threat, interest rates can remain where they are.”
Cassim said the bank was concerned that households’ cost of servicing debt was increasing as interest rates increased.
“This is an economy where households spend a lot and we always have debt.”
Key among the factors this year which have impacted the economic outlook have been the sustained drop in commodity prices as China’s economy continues its slowdown, and the depreciation in the rand against other currencies.
Global investors have also been attracted to the prospect of higher interest rates in the US, shedding investments in emerging markets.
Local factors including load-shedding and the drought have also impacted economic growth. However, Fowkes said the effects of the drought had not yet worked their way into food price inflation. Prices would accelerate in 2016.
The MPR estimates that inflation next year will be at 6%, dropping to 5.8% in 2017 and settling at 5% after that. Growth in the economy next year is estimated at 1.5%.
Unlike typical scenarios where low growth moderated inflationary pressures, South Africa’s inflation remained “uncomfortably resilient” hovering at the top end of or above the target band. The country had not exploited any benefit flowing from a weaker oil price. Instead, salary increases were a big inflationary factor.
Cassim warned that above inflation increases in the country’s public sector wage bill were unsustainable without concomitant increases in productivity. — rayh@dispatch.co.za
Reserve Bank in slump alert
The bank’s comments came via researcher David Fowkes during a presentation of the latest Monetary Policy Review (MPR) in East London this week.
Bank officials also said public sector wage increases were fuelling high inflation.
Fowkes said the bank was in a “gradual hiking cycle”, which had started in January this year.
After two increases to the repo rate his year, South Africans could expect further increases as the bank intensified efforts to stabilise the economy against international developments.
Colleague Rashid Cassim was more forthright: “The central bank wants to warn you: These low interest rates are not here to stay – gear up for an increase in interest rates. Obviously we don’t increase for the sake of increasing but if there’s an inflationary threat. If there’s no threat, interest rates can remain where they are.”
Cassim said the bank was concerned that households’ cost of servicing debt was increasing as interest rates increased.
“This is an economy where households spend a lot and we always have debt.”
Key among the factors this year which have impacted the economic outlook have been the sustained drop in commodity prices as China’s economy continues its slowdown, and the depreciation in the rand against other currencies.
Global investors have also been attracted to the prospect of higher interest rates in the US, shedding investments in emerging markets.
Local factors including load-shedding and the drought have also impacted economic growth. However, Fowkes said the effects of the drought had not yet worked their way into food price inflation. Prices would accelerate in 2016.
The MPR estimates that inflation next year will be at 6%, dropping to 5.8% in 2017 and settling at 5% after that. Growth in the economy next year is estimated at 1.5%.
Unlike typical scenarios where low growth moderated inflationary pressures, South Africa’s inflation remained “uncomfortably resilient” hovering at the top end of or above the target band. The country had not exploited any benefit flowing from a weaker oil price. Instead, salary increases were a big inflationary factor.
Cassim warned that above inflation increases in the country’s public sector wage bill were unsustainable without concomitant increases in productivity. — rayh@dispatch.co.za
Would you like to comment on this article?
Register (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Trending Now
Latest Videos