Monetary policy is limited in what it can do to stimulate the economy and low interest rates alone aren’t enough to spur growth, Marcus said in a speech yesterday to labor union officials in the eastern coastal city of Durban.
“The South African Reserve Bank will vigorously defend our independence, our ability to act without fear or favor, and to take decisions that are in the interests of all South Africans,” the governor told members of the National Union of Metalworkers of South Africa.
The central bank has kept its repurchase rate at 5.5 percent, the lowest level in more than 30 years, for more than a year to help offset the impact of the European debt crisis. The Reserve Bank last month cut its forecast for economic growth this year to 2.9 percent from 3 percent. The economy expanded 3.1 percent in 2011.
While Marcus said on May 8 that there is no room to further stimulate the economy because of inflation pressures, traders are increasing bets that the bank may cut rates this year.
The yield on forward-rate agreements due in December dropped 33 basis points in the past month, the most since September. As recently as March, the contract for December implied a rate increase of 50 basis points.
While manufacturing data yesterday showed an improvement in April, it was “off a low base,” Marcus said. Factory output, which accounts for 15 percent of the economy, expanded 1.2 percent in April after contracting 2.9 percent in March, the statistics agency said.
Inflation has remained above or near the top of the central bank’s target range of 3 percent to 6 percent since November, limiting room for the bank to follow policy makers in Brazil, India and Australia in lowering interest rates. The inflation rate rose to 6.1 percent in April from 6 percent in the previous month.
The rand’s depreciation is the biggest risk to the inflation outlook, Marcus said. The currency has slumped 8 percent to 8.3198 against the dollar since the beginning of April.
“Monetary policy will face a challenging period ahead, in trying to deal with these risks to inflation against the backdrop of a volatile and uncertain global environment and the implications for the domestic economy,” Marcus said in the speech, according to a copy posted on the central bank’s website.
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