THE Reserve Bank kept interest rates steady yesterday as expected with new governor Gill Marcus highlighting the role global events play in SA’s tentative economic recovery.
Proposed Eskom electricity price hikes still posed the main inflation threat, and the outlook had not changed much since the Bank’s monetary policy committee meeting last month, she said.
Given uncertainty on those tariffs and the strength of the global economic recovery, the committee had decided to leave the repo rate steady at 7%, she said.
Marcus, who took over from a week ago, turned protocol on its head by bringing the entire committee into the televised press conference after its deliberations.
She made it clear she would not bow to pressure for more rate cuts from the government, trade unions and business leaders. She also dismissed calls for the Bank to engineer a more competitive level for the strong rand, which some fear will derail SA’s recovery.
“I do not see (myself) as a political appointment, that I am bound to anybody politically,” she said. But Marcus, who is seen as more of a dove on monetary policy than Mboweni, said she welcomed the intense debate on the Bank’s inflation targeting mandate.
Monetary policy was an “evolving process” requiring “engagement”, and it was being debated everywhere in the wake of the global financial crisis, she said.
Standard Chartered regional research head for Africa Razia Khan said: “Some adjustment to the pure inflation targeting mandate of the Bank appears to be a given. But what this will … mean for interest rate decisions, especially in the context of future price level uncertainty, is not clear cut,” she said.
The Bank trimmed lending rates by five percentage points since last December in a bid to propel SA out of its recession.
It eased monetary policy even though inflation breached its 3%- 6% target range since April 2007, rising by 6,1% in the year to September. Marcus said the Bank expected a sustained return to target by next year’s second quarter, but inflation might subside below 6% temporarily before then.
Afterwards, inflation was set to remain within target range until the end of 2011, averaging 5,5% in the final quarter of that year.
But the Bank’s forecasts do not take into account Eskom’s plan to raise tariffs 45% a year for three years. It will announce revised proposals by month-end.
The Bank was “concerned” at the way in which those hikes were being considered, Marcus said. She cited high pay settlements as an inflation risk. This will not go down well with trade unions.
Marcus said the economy might emerge from recession in the fourth quarter, but growth would be below potential for “some time. Most forecasts suggest that positive growth will have resumed by the fourth quarter of 2009, but there is less unanimity about the third quarter outcome.” The Bank expected the economy to shrink further in the third quarter, but at a slower pace.
The Bank cancelled next month’s scheduled meeting, and said it would return to meeting every two months next year.
isam@bdfm.co.za.