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

by Reuters 0

This was announced by the deputy governor Lesetja Kganyago on Tuesday.

Likely interest rate increases in the United States would require corresponding policy shifts in South Africa, Kganyago said in a speech prepared for delivery at an investor conference in Cape Town.

The Reserve Bank left interest rates unchanged at 5.75 percent earlier this month, eyeing inflation which has persisted above a 3-6 percent target band, even while it further cut economic growth forecasts for the three years to 2016.

“Confidence in the economy is currently weak, and all else equal, will tend to put upward pressure on inflation rates as households and firms seek price increases as a way to improve their finances,” Kganyago said.

“Today, there is little policy space left to boost demand, and it is surprisingly hard even to specify where we are in the business cycle.”

Africa’s most advanced economy needs to be more competitive, partly by ensuring that inflation does not price local goods and services “out of world markets”, Kganyago said.

“Monetary policy must retain and strengthen its focus on inflation,” he said.

“In doing so, we will push the envelope of transparency and clarity wherever possible; to help ensure that inflation expectations do not drift from the target.”

Kganyago has emerged as the front runner to succeed central bank Governor Gill Marcus when her five year term ends on Nov. 8, a Reuters poll showed last week.