Analysts are predicting that South Africa’s Reserve Bank will hike interest rates next week in an attempt to stabilise the weakening rand and restore financial stability.
CNBC Africa’s Gugulethu Cele spoke to South Africa’s Reserve Bank Governor, Lesetja Kganyago at the World Economic Forum 2016 to get a sense of what factors could influence the highly anticipated decision.
“You build your anchors before the storm comes, not in the middle of the storm,” said Kganyago.”
He added that:
– “As far as South Africa is concerned, our pillars remain our strong macro-economic foundations and a solid monetary policy framework.”
– “You are seeing fiscal policy that is consolidating for the fiscal year that ended last year – the fiscal deficit was significantly less than what it was in 2008 at the onset of the global financial crisis, monetary policy continues to focus on our core mandate of price stability.”
– “Inflation had been anchored within our inflation target range for the best part of last year; we are still concerned about what would happen to inflation going forward.”
– “We see that expectations are anchored outside of our inflation target range and that poses a dilemma for monetary policy because you are faced with a situation where you have got the economy that is slowing and meanwhile you are having expectations of inflation being outside of your target range.”
Recent ministerial shuffle in the finance sector
– “The ministerial shake up made, what was essentially a globally realignment, and made it a South African issue.”
– “We did see significant moves in the currency during that period but classically – economic literature does tell us that exchange rates do overshoot and ours did overshoot as well but that the adjustment downwards is a sticky one.”
– “It is unfortunate that the shake up took place in the middle of a global financial market uncertainty and a global economy that is actually on shaky ground.”
– “The fortunate thing is that the president did listen, he listened to representations that were made to him, we do have [Finance Minister] Pravin Gorhdan at this tier of the ship and I think that we are on a solid wicket.”
Could the SARB increase rates extensively?
– “The only thing that we will respond to is a surge in inflation and we have started our monetary policy tightening, as early as January 2014 – we have taken baby steps that we believe are appropriate.”
“I am less worried about the macro-economy than I am worried about the structural steps that we must take to make sure that the economy is on a solid footing,” concluded the governor.