South Africa’s central bank has offered ”sufficient” monetary policy accommodation to help pull the economy out of a ”mild” recession, central bank Governor Tito Mboweni said on Tuesday.
Africa’s biggest economy slumped into its first recession in nearly two decades at the start of the year, later than the rest of the world, and its recovery is expected to lag those in developed economies.
The Reserve Bank started cutting interest rates in December and has since reduced its repo rate by five percentage points to 7%, despite inflation remaining above its 3% to 6% target range.
Speaking at a dinner to mark him leaving the bank next month, Mboweni said the Reserve Bank and government had done enough to pull the economy out of a recession.
Asked if enough had been done to revive the economy, he said: ”My feeling is there has been sufficient monetary accommodation and the fiscal investment has been good.”
Mboweni said South Africa could start growing again this year, supported by a large government infrastructure spending programme.
”Our forecast is the fourth quarter or the first quarter of next year should see us coming out of recession.”
The bank’s monetary policy committee meets again next week with most analysts seeing rates already having bottomed out.
Consumer inflation was at 6,4% year-on-year in August and while it should continue easing, big power price increases this year and for the next three years will stoke price pressures.
Mboweni said South Africa’s recession has been relatively mild.
”We are experiencing a mild recession, it is not severe. If it was severe we wouldn’t have so many cars on the roads and people buying these large houses,” he said. ”Though spending patterns have come down … [they did not fall to levels] of a severe recession.”
New vehicle sales have been soft for the past two years and house prices have been stagnant as banks cut back on lending.
The economy contracted for the first time in a decade in the final quarter of 2008 and the decline accelerated to 6,4% in the first three months of this year, led mostly by manufacturing and mining hard hit by a global downturn.
The rate of contraction eased to 3% in the second quarter, raising hopes that the worst of the cycle had passed.
Factory output, however, remains subdued and a recovery may only come through later in 2009.
Mboweni said the central bank and government response to the recession should be seen in the context of efforts by the wider G20 group of economic powers.
South Africa’s government has kept spending high even though tax revenue has fallen sharply due to lower company profits and VAT receipts.
The Treasury expects the tax take for 2009/10 to be at least R70-billion below the budget forecast made in February, resulting in a fiscal shortfall of closer to 7% of gross domestic product than the predicted 3,8%.
It, and state utilities, also plan to try keep to their R787-billion, three-year infrastructure spending programme.
The interest rate decision on October 22 will be the last with Mboweni as head of the central bank and its policy committee.
He said inflation targeting and rebuilding the country’s reserves from the negative position he inherited were the highlights of his decade at the head of the bank.
But he declined to offer advice to his successor, Gill Marcus, who takes over November 9.
”I don’t want to be seen ruling from the grave, so there is no advice.” – Reuters