Economic imbalances uncomfortable, says Sarb

Pretoria - South Africa's economic imbalances have grown "more uncomfortable" and growth is unlikely to rebound enough to significantly ease budget and current account deficits without separate policy adjustments, the South African Reserve Bank (Sarb) said on Monday.

The Reserve Bank also said in its December monetary policy review that it is choosing to adjust policy slowly.

"Policy adjustment through a lower inflation rate and gradual fiscal consolidation will help over time to ease the current account deficit to more sustainable levels, while contributing to lower long-term costs of borrowing," Sarb said.

The economy is running huge shortfalls on its budget and current accounts. That makes it vulnerable to shifts in global investor appetite, since the current account is generally funded by portfolio inflows.

The Reserve Bank reiterated that financial conditions have become less hospitable for countries with large funding requirements because of policy normalisation in the United States.

The volatile rand remains the biggest risk to the inflation outlook. Sarb said monetary policy adjustment will ensure that inflation remains under control.

The release of worse-than-expected current account data on Friday hit the rand, which Sarb says may weaken further.

READ: Current account deficit shock

The Reserve Bank has raised its repo rate by 75 basis points to 5.75% this year. It left rates unchanged at its last two policy meetings, in an effort to support lacklustre economic growth.

No more ratings downgrades expected

Sarb does not foresee risks of further ratings downgrades, said governor Lesetja Kganyago.

Kganyago made the statement following the release of the monetary policy review. Moody's downgraded South Africa's credit rating in November, citing poor prospects for medium-term growth and rising public debt.

READ: Economy risks losing coveted credit status