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Monetary policy alone can’t fix economy – Sarb governor

More measures needed to boost growth.
'The supply-side of this economy is in deep trouble,' says Lesetja Kganyago. Image: Moneyweb

South Africa’s weak economic growth is due to unsustainable policies and monetary policy alone can’t fix that, Reserve Bank Governor Lesetja Kganyago said.

Data released on Tuesday showed Africa’s most-industrialised economy slumped into its second recession since President Cyril Ramaphosa came to power at the start of 2018, after gross domestic product declined more than projected in the fourth quarter. That was largely blamed on power cuts that intensified in the period, knocking business confidence.

Read: SA is in recession

“The supply-side of this economy is in deep trouble,” Kganyago said Wednesday in a public lecture in the central city of Bloemfontein. “Unfortunately, these kinds of growth constraints are beyond the reach of monetary policy.”

For the full year, economic growth was 0.2%, the lowest since the global financial crisis, and half of what the Reserve Bank estimated in January when it cut its key interest rate by 25 basis points.

While the Reserve Bank targets inflation at 3% to 6%, Kganyago has made it clear for the past two years that it prefers to see price growth anchored close to the midpoint of the band. With price growth at or less than 4.5% for 14 months and economic growth stuck below 1% since 2018, the central bank has been criticised by some politicians and labour unions who say it should do more to boost the economy and help tackle an unemployment rate of 29%.

The monetary policy committee’s projection model priced in only one more 25-basis-point cut late this year. However, after the recession news and the US Federal Reserve’s emergency rate cut on Tuesday to counter the impact of the coronavirus on output, some calls for Kganyago to act have grown. The MPC is scheduled to announce its next rate decision on March 19.

“If South African inflation were to moderate further, we would have more space to lower interest rates,” Kganyago said. “But even with extremely low growth, inflation does not appear to be slowing further, and we see almost no risk of inflation missing our target from below, which has been a problem for many other countries.”

© 2020 Bloomberg L.P.


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With due respect Mr Governor, South Africa’s repo-rate/interest rates are unjustly too high… Anything above 4,5% anywhere in the world kills economic momentum.

Paying too much towards debt, whether careless or productive debt, leaves citizens with too little to be creative. It shrinks economic activity… it creates a situation of buying 1 instead of the usual 5 items in the economy. Release the shackles, let the people buy.

So lets just punish all the savers?

Savers are a problem, there is so little of them in this economy and they want to determine the path of the majority. The interest they earn on their savings is derived from the hardship of the non-saving borrowers who fuel the economic engine. Savers do not give to the economy but they take and hoard. If I were to dictate financial policy, I would cancel all interest paid on savings and tax less on investments gains… Money would move out of savings into investments with lightning speed.

SA’s problems are a DIRECT result of an out-of-control, and deliberately ignored, demographic trend that the country cannot sustain.

You would not expect an economist to attend to a medical problem.

And nor, in this case, would Economists be the appropriate intervention to fix what is a Social, cultural problem.

Kganyago has it all wrong … It’s the demand side … Supply was killed by no demand … That simple.

It is better to buy South African government debt than invest in this economy

Ridiculous, lower interest rates is the most anti poor policy the SARB can follow. We will see much more volatility in the rand and I recon we will see R20 to the dollar. Investors chase yield , with no yield to offer in SA that money will disappear and the currency will take a massive hiding.

Transport prices , electricity and food stuff will massively increase, exactly the items that the most poor in the country have in their basket.

End of comments.





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