TUESDAY, 6.00PM:
RESERVE Bank governor Chris Stals, in his annual address on Tuesday to the bank’s board, scotched hopes of an early cut in interest rates, stressing the need for financial caution in the months ahead.
“In the present situation, the Reserve Bank feels that a cautious monetary policy remains justified,” Stals said.
He said that while adjustments to alleviate imbalances in the economy which materialised last year had largely been successfully completed, there are still serious concerns about instability in the financial sector. “We remain concerned about the high level of credit extension, and have to continue to follow conservative monetary policy,” Stals said.
The financial markets and the business community as a whole have been eagerly awaiting a loosening of monetary policy to rejuvenate economic growth. Despite a relaticely stable foreign exchange market and strong reserves, Stals said he is concerned about the continued high rates of money supply and credit extended by banks to the private sector. “The overall financial situation still provides reason for concern, particularly in view of the continued high rates of increase in bank credit extension and in broad money supply,” he said.
Money supply has remained consistently above the Bank’s target range of below 10%, fluctuating around 15% to 16% for most of the past two years. The figure declined gradually during the second quarter of 1997 and had dropped to 12,7% in June.
Bank credit, however, remains stubbornly above the Bank’s target of 10% to 12% — it dropped marginally to an annualised rate of 16,3% in June.
Stals also dismissed comments that South Africa’s interest rates are too high, and referred to an International Monetary Fund report released on Tuesday that warns against a hasty reduction in interest rates. The IMF report expressed concern over inflationary pressure in South Africa which, it said, had become evident through the levels of money growth.