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MPC Meeting: What will the Sarb decide?
Reserve bank governor Lesetja Kganyago, will deliver an address on the decisions of the bank’s Monetary Policy Committee. The jury is still out on whether they will make any changes. Just yesterday CPI for February came in lower at 2.9 per cent. Investec Chief Economist, Annabel Bishop joins CNBC Africa for more.
Thu, 25 Mar 2021 11:59:19 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- The potential risk of rising inflation amid global commodity price increases and the need for interest rate hikes to balance economic stability.
- Uneven global economic recovery dynamics and the impact of slow vaccination rollout on South Africa's economic prospects.
- Forecasted inflation rate of 4.2 percent for the year, structural challenges hindering GDP growth, and the importance of implementing reforms to address the output gap.
The Monetary Policy Committee (MPC) meeting of the South African Reserve Bank (Sarb) is eagerly anticipated as investors and analysts await the decisions that will be made in light of the persistent economic challenges facing the country. With inflation currently at a low of 2.9 percent, the environment seems favorable. However, the Investec Chief Economist, Annabel Bishop, expresses concerns about potential future inflationary pressures due to rising commodity prices globally.
Bishop highlights the impact of weak demand on inflation, attributing the current low inflation rate to factors such as reduced medical aid costs and the moderation in oil prices witnessed last year. Despite the current low inflation levels, she warns that the trend may not continue indefinitely, especially with the recent uptick in commodity prices. The looming statistical base effect from last year's harsh lockdowns is also expected to push inflation levels higher in the coming months.
One of the key themes discussed in the interview is the risk of a 25 basis points rate hike in May and another in September. Bishop notes that failure to implement these hikes could potentially lead to significant rand weakness due to negative interest rates. While she acknowledges the negative impact of high-interest rates on the already fragile economy, she stresses the importance of balancing inflationary pressures with the need for economic stability.
The discussion also touches on global economic dynamics, with Bishop highlighting the uneven nature of the recovery across different countries. While countries like the United States are expecting robust economic growth fueled by stimulus measures, South Africa's slow vaccination rollout poses a significant risk to its economic recovery. The uncertainty surrounding further waves of COVID-19 and the possibility of renewed restrictions add to the economic challenges facing the country.
Regarding the potential for additional lockdowns and their impact on economic projections, Bishop remains cautious but optimistic that the country will not experience the same level of economic shock as seen in the second quarter of last year. She anticipates a more targeted approach to restrictions, particularly affecting industries like hospitality, to mitigate the spread of the virus.
In terms of inflation outlook, Bishop forecasts an average of 4.2 percent for the year, with expectations of a gradual increase in inflation due to factors such as commodity price fluctuations and tax hikes. She believes that the current inflation rate of 2.9 percent could signal the bottom of the cycle, with inflationary pressures likely to rise in the coming months.
Discussing the output gap and economic growth prospects, Bishop emphasizes the need for structural reforms to boost productivity and drive sustainable growth. She acknowledges the challenges posed by the pandemic and the slow pace of recovery, noting that South Africa's economic output is still below pre-pandemic levels. With gradual improvements expected in GDP growth, Bishop underscores the importance of addressing structural issues to close the output gap.
As the Sarb governor prepares to deliver the MPC meeting address, Bishop anticipates a comprehensive overview of key economic indicators, including inflation forecasts, GDP growth projections, and the impact of global economic trends on South Africa. She emphasizes the need for a delicate balance between inflation management and economic stability, given the prevailing uncertainties in the domestic and global economic landscape.
In conclusion, the interview sheds light on the complex challenges facing the South African economy and the delicate balancing act required by the central bank to navigate through these uncertainties. As the country grapples with the aftermath of the pandemic and sluggish vaccination progress, the decisions taken by the Sarb are crucial in shaping the economic trajectory and providing support to mitigate the impacts of ongoing challenges.
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