Rising inflation sees SA economy treading lightly

A flagging growth rate and rising inflation will see the South African economy treading lightly through choppy times, economists told Mail & Guardian on Thursday.

The comments follow the announcement by the Reserve Bank of its decision to leave the repo rate unchanged at 5.5%.

The Reserve Bank also revised its growth forecasts to 3.2% in 2011 and 3.6% in 2012 after pegging growth at 3.7% and 3.9% for each year respectively.

While it was widely expected that the Reserve Bank would leave rates unchanged, economists have warned that should economic conditions not improve in the immediate future; the bank would be faced with some tough decisions.

“It’s a very difficult time in the world as prices rise and growth slows. You need to get people to spend in order to stimulate the economy, so it’s a very difficult position the Reserve Bank finds itself in,” said economist Mike Schussler of economist.co.za.

With growth sliding and inflation increasing, there is room for the Reserve Bank to drop interest rates below 5.5% — the lowest it has been since 1981.

The main point of concern at the moment is the weakening of the rand, which pushes up inflation more by increasing the costs of imports — providing further impetus on a push for a rate cut.

The local currency dropped more than 9% this week along, falling from R7.66 to the greenback on Monday to trade at R8.28 by the closing bell on Thursday.

“The rand has been a constraint on inflation but it will quickly weigh in as the currency weakens and imports become more expensive,” Investment Solutions chief economist Chris Hart told the M&G.

Unclear indications
At this stage though, there is no clear indication that the Reserve Bank will move on the repo rate if current economic conditions continue.

Reserve Bank governor Gill Marcus was candid about the institution’s readiness to act if necessary but indicated that it might try to weather the storm.

“We need to see through the current noise and look through to the bigger picture,” she said when answering questions after the announcement.

Absa Capital senior economist Gina Schoeman echoed Marcus’s sentiment, but cautioned against slow action should the need to drop rates arise.

“While there is only moderate risk for now, should we see any type of recessionary activity, the Reserve Bank will have to rethink things and consider a rate cut,” she said.

This was further supported by Schussler, who said a drop in rates was inevitable should the economic situation not improve.

“If conditions stay the same, I would say rates will more than likely drop the next time the MPC meets,” he said.

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever. But it comes at a cost. Advertisers are cancelling campaigns, and our live events have come to an abrupt halt. Our income has been slashed.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years. We’ve survived thanks to the support of our readers, we will need you to help us get through this.

To help us ensure another 35 future years of fiercely independent journalism, please subscribe.


The recovered remain cautious

People who have survived Covid-19 are not going through life carefree. They are still taking all the preventative measures

Lockdown relief scheme payouts to employees tops R14-billion

Now employers and employees can apply to the Unemployment Insurance Fund for relief scheme payments

Press Releases

Covid-19 and Frontline Workers

Who is caring for the healthcare workers? 'Working together is how we are going to get through this. It’s not just a marathon, it’s a relay'.

PPS webinar Part 2: Small business, big risk

The risks that businesses face and how they can be dealt with are something all business owners should be well acquainted with

Call for applications for the position of GCRO executive director

The Gauteng City-Region Observatory is seeking to appoint a high-calibre researcher and manager to be the executive director and to lead it

DriveRisk stays safe with high-tech thermal camera solution

Itec Evolve installed the screening device within a few days to help the driver behaviour company become compliant with health and safety regulations

Senwes launches Agri Value Chain Food Umbrella

South African farmers can now help to feed the needy by donating part of their bumper maize crop to delivery number 418668

Ethics and internal financial controls add value to the public sector

National treasury is rolling out accounting technician training programmes to upskill those who work in its finance units in public sector accounting principles

Lessons from South Korea for Africa’s development

'Leaders can push people through, through their vision and inspiration, based on their exemplary actions'

Old Mutual announces digital AGM

An ambitious plan to create Africa’s biggest digital classroom is intended to address one of the continent’s biggest challenges — access to education

The best local and international journalism

handpicked and in your inbox every weekday