South Africa can no longer blame the global financial crisis for its flagging economic performance, says Reserve Bank governor Gill Marcus.
While the global backdrop remains difficult as the advanced economies emerge from the financial crisis of the past seven years, “it is no longer the main cause of South Africa’s weak domestic economic performance”, said Marcus.
Speaking at a business breakfast in Rosebank on Tuesday morning, the governor said that South Africa’s economic slowdown is “domestically driven” and “largely self-inflicted”.
“We cannot blame external factors alone,” she said. There were “enormous headwinds” facing the domestic economy, caused in part by the worsening labour environment.
The longest mining strike in the nation’s history that has shut operations at the world’s largest platinum mines, is threatening to push the economy into its first recession in five years.
Marcus said that this meant that South Africa could steer its own fate towards greater productive output.
“The solutions are in our own hands,” she said. “As a country instead of focusing on whether we are entering a recession or not, we should all be striving to restore the economy to the strong growth path that it is capable of achieving.”
Possible hike in repo rate
Marcus said that policy decisions could not resolve South Africa’s internal difficulties.
“Monetary policy cannot resolve these issues, nor can it deal with structural constraints to longer term growth. Rather, the role of monetary policy is to contribute to a stable macroeconomic environment conducive to inclusive higher growth.”
The Reserve Bank raised the benchmark interest rate by 50 basis points in January, citing inflation as one of its main concerns.
Policy makers left the benchmark repurchase rate unchanged at 5.5% for a second meeting in May to help support the economy even as inflation exceeded the bank’s 3% to 6% target band.
According to Marcus, January’s interest rate increase “wasn’t a one-off”.
There was a possibility that the repo rate would be raised by another 25 basis points.
Context
The economy is in a “moderate extended cycle”, which means borrowing costs may not be adjusted at each Monetary Policy Committee meeting or move by the same amount, she said.
The governor said that while a 25 basis-point increase may have little effect on its own, “seen in the context of a longer cycle, it could be part of a cumulative increase, particularly should the [Monetary Policy Committee] wish to see a smoother and more gradual adjustment.”
The Reserve Bank hasn’t adjusted the benchmark rate by less than 50 basis points since 2000.
The rand fell 0.5% against the dollar to 10.69 as of 9.45am in Johannesburg, taking its decline this year to 1.9%. Forward-rate agreements starting in four months rose seven basis points to 6.26%. – Additional reporting by Bloomberg.