South Africa’s MPC Held Off Half-Point Rate Cut Despite Flexibility

JOHANNESBURG (Capital Markets in Africa) – South Africa’s central bank didn’t consider easing policy by more than 25 basis points last week, despite the flexibility it has with interest rates, Governor Lesetja Kganyago said.

“As a small open economy, we don’t have the problem that the developed world has where monetary policy is at the zero lower- bound, we have the flexibility to do things,” Kganyago said in an interview with Bloomberg TV at the World Economic Forum in Davos on Tuesday. Still, “there was no argument about having a 50 basis-point cut,” he said.

The central bank unexpectedly cut its key lending rate to the lowest in four years on Jan. 16 after slashing forecasts for inflation and economic growth. The five-member Monetary Policy Committee was unanimous in its decision. Despite the cut, real interest rates remain near the highest in almost a decade, with inflation that’s been at or below the 4.5% midpoint of the MPC’s target band for 12 months.

The MPC also lowered the repurchase rate by 25 basis points in July. With an economy that contracted in the first and third quarters and an unemployment rate near 30%, the central bank has come under fire from politicians and labor unions for not making bigger reductions and for not cutting again in the second half of 2019.

“Our focus still is on price stability and we have been adjusting policy to deal with the challenges of price stability,” Kganyago said. “In the process, from July last year, we had actually seen resilience in terms of the stability of domestic prices and that had given us the room to adjust policy.”

Source: Bloomberg Business News