South Africa’s economy faces major challenges: central bank head

South Africa’s economy faces major challenges and government needs to win back the confidence of businesses and investors by tackling policy uncertainty and corruption, central bank governor Lesetja Kganyago said on Thursday.

S.Africa cbank's Kganyago says little policy space to boost demand

Kganyago said in a speech at an investor conference in New York that weak business confidence had shaved an estimated one percentage point off South Africa’s economic growth last year.

He said that the central bank would like to see inflation expectations anchored at around 4.5 percent, compared with 5.1 percent now. The volatile rand currency is the biggest risk to inflation forecasts, Kganyago said.

“Inflation today in South Africa is within the target. The highest it should be in terms of our forecast is 5.2 percent,” he said in a subsequent interview with Reuters.

“That gives us room within the inflation target band…Inflation could rise but would remain within our inflation target,” Kganyago said.

The Governor of the South African Reserve Bank deflected questions on where he thought interest rates would move, saying there is no target.

The central bank kept its benchmark repo rate at 6.75 percent on Sept. 21, defying expectations at the time of a cut based upon easing inflation pressures and a sluggish recovery from a recession in the first half of the year.

“Everybody talks about are you close to neutral or off neutral? When the world over, nobody knows what neutral is because the world as we know it is different from the world we knew before the global financial crisis. Everybody is trying to find neutral,” he said.

The central banker, in his position since 2014, said that inflation would remain in the 3 to 6 percent target zone for the next two years.

“We are currently at 4.8 percent and the outlook is that inflation will average 5 percent this year. But we still expect to reach the bottom of 4.6 percent in the first quarter of next year. Over the policy horizon of 2018 and 2019, the highest inflation will be is 5.2 percent for the year,” he said.

With inflation remaining subdued, Kganyago also highlighted the improvements in the narrowing current account deficit. He said indications are that for the third quarter it should remain, at worst in the 2 percent area.

”And at best could actual decline as low as 1 percent.

Reporting by Joe Brock in Johannesburg and Dnaiel Bases in New York; Editing by Toby Chopra and Grant McCool

Related Content

South African Reserve Bank cuts lending rate by 50 basis points

South Africa’s central bank cut its main lending rate by 50 basis points (bps) to 3.75% on Thursday, in what Governor Lesetja Kganyago said was a move aimed at shielding the economy from the impact of the new coronavirus.

StanChart on SA’s COVID-19 monetary policy response

In the next few hours the South African Reserve Bank governor is due to announce the MPC rate decision, which many analysts believe that there will be a rate cut of 50 Basis points. Joining CNBC Africa to give insight on South Africa’s monetary stimulus support during Covid-19 is Razia Khan, Chief Economist for Africa and the Middle East at Standard Chartered Bank.

Op-Ed: Counting the economic cost of South Africa’s lockdown

“I am concerned that our government’s lockdown approach and the subsequent economic hardship inflicted on our people will cost more lives than it can save,” writes Andrew Lapping, Chief Investment Officer at Allan Gray.

How SA’s R200bn Covid-19 loan scheme for small businesses works

In order to help small and medium enterprises, support the economy and save jobs, the South African Reserve Bank (SARB) and the National Treasury are partnering with members of the Banking Association South Africa (BASA) to roll out a R200 billion Covid-19 loan scheme.

Subscribe to our newsletter

Sign up for free newsletters and get more CNBC AFRICA delivered to your inbox

More from CNBC Africa

Uganda Securities Exchange CEO on how COVID-19 is impacting the bourse

The economic turmoil caused by the COVID-19 pandemic has had wide severe impact on financial markets not leaving behind stocks, bond and commodity markets. Uganda Securities Exchange CEO, Paul Bwiso joins CNBC Africa for more.

COVID-19: How the pandemic is accelerating the digitalization of healthcare

The COVID-19 pandemic has caused huge disruptions in healthcare provision, highlighting the need to adopt and invest in digitalization. Dr. Wanjeri Millicent Loice, Director and Content Manager, Toto Health Kenya joins CNBC Africa for more.

AfDB’s Nnenna Nwabufo on how COVID-19 has impacted African economies

According to the African Development Bank’s revised African Economic Outlook, though the continent is expected to rebound next year; it could lose a quarter of a trillion dollars in economic output for the rest of this year and 2021. Nnenna Nwabufo, Acting Director-General of East Africa Regional Office at the AfDB joins CNBC Africa for more.

Kenyan sports minister Amina Mohamed to bid for top WTO job

The Geneva-based body is seeking a replacement for Brazil’s Roberto Azevedo who is stepping down a year early at the end of August at a critical juncture for the trade watchdog.

Partner Content

Maktech’s Godwin Makyao: Now Is A Time of Entrepreneurial Opportunity in East Africa

As an executive decision-maker in both the telecommunications and tourism industries, Godwin Makyao could not have experienced a more diverse set of...

Sanlam launches urgent job-preservation initiative in response to COVID-19

Sanlam Investments is responding to the COVID-19 pandemic through large-scale support of the recovery of South African companies, from small enterprises to...

Trending Now

Steinhoff agrees to sell stake in Conforama France to Mobilux

JOHANNESBURG (Reuters) - Scandal-hit Steinhoff International agreed to sell its shares in furniture retailer Conforama France to Mobilux Sàrl, the parent company...

Namibia to ground national carrier’s license over cash hole

WINDHOEK (Reuters) - Cash-strapped Air Namibia will have its planes grounded at midnight on Wednesday after it failed to secure enough funding...

Uganda growth to sink as low as 0.4% this year – World Bank

KAMPALA (Reuters) - Ugandan economic growth is set to plunge to as low as 0.4% in 2020 from 5.6% last year as...

How retirement funds can contribute to rebuilding SA’s economy

Sanlam Benchmark Symposium: Sanlam has conducted research across a wide breadth of employers, retirement funds and professional consultants to benchmark their employee benefits experiences of the lock-down as well as their expectations of the future in a COVID-19 impacted economy. Chris Bishop spoke to Viresh Maharaj, Managing Executive, Sanlam Corporate Distribution, about the outcomes of the research and current trends in the Industry....
- Advertisement -