“The current monetary policy stance is accommodative because of the persistence of the negative output gap,” Marcus said in a speech posted on the Pretoria-based bank’s website today. “However, the expected inflation trajectory suggests that there is limited, if any, room for further monetary accommodation at this stage.”
The central bank has to be concerned about the impact of lower interest rates on inflation, and reducing rates won’t necessarily help make the rand more competitive or stable, she said.
The Reserve Bank has kept the benchmark rate at 5.5 percent, the lowest level in more than three decades, since November 2010, to support the economy as a slowdown in Europe, a key trading partner, threatens demand. Economists say the first rate increase may come late this year or next year. Inflation slowed to 6 percent in March and the central bank forecasts it will slow to be sustainably within the band by the end of the year. The Monetary Policy Committee is scheduled to announce its next decision on May 24.
The view on rates is conditional on whether there are are “significant adverse changes” in other factors, such as domestic and global growth, that the MPC takes into account when deciding on the policy stance, Marcus said.
While the economic recovery in Africa’s biggest economy from recession in 2009 is fairly moderate, it looks to be sustainable, she said. The economy will probably grow at a similar rate this year to the 3.1 percent for 2011, Marcus said. Conditions in advanced economies remain fragile, she said.
Consumer spending has led growth in South Africa’s economy and credit demand and retail sales growth are accelerating. Lending by commercial banks to households and businesses rose 9.2 percent in March from a year earlier, the fastest pace in more than three years, according to the central bank. Retail sales increased 7.2 percent in February, the statistics agency said April 18.
Economic growth, though, remains less than half the 7 percent the government estimates is needed to meet its goal to create 5 million jobs by 2020. Unemployment was 23.9 percent in the fourth quarter.
The volatility of South Africa’s rand creates problems for setting monetary policy and isn’t “helpful for the real economy,” Marcus said. While the central bank has been active in the foreign-exchange market to build its reserves, it doesn’t try to set a level for the currency, she said.
The rand may be moderately overvalued at current levels, Marcus said, without giving an estimate of overvaluation.
“There is an incorrect perception that the Reserve Bank attempts to keep the exchange rate strong in order to help with inflation,” she said.
The local currency has gained 3.6 percent against the dollar this year after declining 18 percent in 2011, according to data compiled by Bloomberg. It strengthened 0.3 percent to 7.8076 by 8:30 p.m. in Johannesburg.
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