Inflation continues to slow

Inflation is under control and the central bank will maintain a policy to keep it low to protect the poor and ease inequality, SA Reserve Bank (Sarb) Governor Lesetja Kganyago says.

Pursuing other priorities, such as reducing unemployment, has been shown in other countries to cause “widespread economic damage”, Kganyago said this week. The central bank expects price growth to slow to 5.4% next year and 5.5% in 2019, he said.

“The best way to get permanently lower interest rates is to bring down inflation – and then keep it low and predictable,” the governor said.

“Inflation is under control and if it is under control it reduces poverty and inequality.”

Inflation slowed to 6.1% in March, and the bank expects it to decelerate to below 6% before July. Even so, price growth remains outside Kganyago’s target range of 3% and 6%, where it has been for seven months.

The Monetary Policy Committee has kept the benchmark repurchase rate unchanged at 7% since last March. Forward rate agreements, used to speculate on borrowing costs, are pricing in a 25 basis point rate cut by the end of the year.

Lower interest rates are unlikely to reduce unemployment, at 26.5% last December, Kganyago said.

Kganyago and newly appointed Finance Minister Malusi Gigaba are in charge of reviving an economy that the World Bank expects to expand less than 1% for the second year in a row. The central bank has forecast an expansion of 1.2%.

Rating agencies have cut South Africa’s credit rating to below investment grade, causing the rand to weaken against the dollar.

Sarb’s policy of targeting inflation is in line with the strategy of improving inclusive growth for all South Africans, Kganyago said. – Bloomberg