The Reserve Bank hailed a prudent fiscal environment as the recipe for sustainable growth in its latest monetary policy review, which comes weeks before the Treasury is due to present its medium-term policy statement and after the central bank launched an aggressive fight against inflation.
“The global conditions are very volatile and in that kind of environment, if you make decisions or announce things that are not consistent with long-term sustainability then you run the risk of running bigger problems,” said Chris Loewald, head of economic research and monetary policy, in reference to the UK, where borrowing costs are now projected to nearly triple after it unveiled a debt-laden economic plan last month.
“SA is not in the same boat at all. I mean we have a fiscal position that is consolidated and trying not to have an increase in the public debt level and we have a monetary policy that is focused on getting inflation down. And we have terms of trade that have been very strong on the export side. We are doing very well.”
Loewald was speaking to Business Day on the sidelines of the briefing of the monetary policy review, which painted a gloomy picture for the global and domestic economy, warning that though fuel inflation has eased and global food prices are somewhat lower, central banks around the world continue their policy tightening path to restore price stability.
The six-month review released on Tuesday, which aims to broaden the public’s understanding of the objectives and conduct of monetary policy and to elaborate on the Bank’s policy stance, comes after the monetary policy committee (MPC) raised the repurchase rate by a cumulative 200 basis points over the three meetings covered in the edition, bringing borrowing costs to 6.25%.
It also comes weeks before the finance minister, Enoch Godongwana, presents his medium-term budget policy statement. It is likely to show a much improved main budget deficit for the 2022/2023 fiscal year compared with the national budget presented in February. The tax take shot past the February budget outlook by R162bn, narrowing the main budget deficit to R42.7bn in August from R129.5bn in July.
Responding to a question from the floor about the reason behind the shape of SA’s yield curve, Bank governor Lesetja Kganyago said: “The fiscal outcomes for 2021 and 2022 have positively surprised us, and the figures that have come out so far show that revenues have been outperforming, which could mean that the Treasury might be in for another positive surprise. And the more fiscal credibility is restored, the more we should see an action that takes place through the yield curve. We do not manage the yield curve but we can contribute. And the contribution that we can make is to manage inflation.
“That means we have to consistently hit our target so that we get inflation expectations anchored within our target. By so doing, we will be contributing to bringing down the yield curve.”
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