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Johannesburg - The global economy continues to be in crisis and if it slows down markedly South Africa will act appropriately, Reserve Bank governor Gill Marcus said on Tuesday.
Marcus struck a bleak tone on global economic turmoil and its impact on the domestic economy at an American Chamber of Business breakfast meeting.
“We are not in a normal cyclical downturn. The crisis cannot be resolved by monetary policy alone. Monetary policy can help to some extent,” she told the meeting.
“If there is a significant global slowdown we will act appropriately,” she said, declining to explain further.
She said while local inflation is ticking up, there are few signs of domestic demand pressures. Price increases are likely driven by electricity and food, and recent retail sales figures signal the economy may have slowed down further.
“If you take out administered prices, you’ll find there’s a very benign inflation outlook,” Marcus said.
Bond yields have fallen on increasing speculation the Reserve Bank may cut rates again by year-end, and Marcus’ comments will likely add to such bets.
The bank’s main repo rate is currently at 5.5% after reductions of a total 650 basis points between November 2008 and end-2010.
Slower second quarter
The economy grew by a robust 4.8% year-on-year (y/y) in the first quarter but Marcus said all indications were that second-quarter numbers next week would be weaker.
Retail sales growth was also at 2.2% y/y in June, suggesting household spending remains constrained.
But Nomura emerging markets analyst Peter Attard Montalto said a rate cut was not a foregone conclusion.
“They will require more than a soft Q2 domestic number - which was already expected at the last meeting - before cutting,” he said.
“As with the hurdles to get over for hiking, so too the hurdles before cutting are very high,” he said, adding the global economy would have to be negative enough to start hitting exports for the Reserve Bank to cut rates.
July’s inflation figures will also be released Wednesday and the market expects CPI to tick up to 5.2% from 5.0% y/y in June.
After starting weaker on the day, the bond market was firmer after Marcus’ comments, with the 2015 yield falling 10 basis points to 6.46% on that on the 2026 yield falling 6.5 basis points to 7.88%.
“Though the market is becoming increasingly confident that a further rate cut could be on the cards, we maintain that we would have to see a significant slowdown in global and domestic economic activity and clear evidence that local policy rates are no longer accommodative to justify a further cut in rates,” analysts from Absa Capital said in a note.
“We therefore continue to look for the policy rate to remain on hold throughout 2011 with the first hike pencilled in for around the middle of 2012.”
Marcus struck a bleak tone on global economic turmoil and its impact on the domestic economy at an American Chamber of Business breakfast meeting.
“We are not in a normal cyclical downturn. The crisis cannot be resolved by monetary policy alone. Monetary policy can help to some extent,” she told the meeting.
“If there is a significant global slowdown we will act appropriately,” she said, declining to explain further.
She said while local inflation is ticking up, there are few signs of domestic demand pressures. Price increases are likely driven by electricity and food, and recent retail sales figures signal the economy may have slowed down further.
“If you take out administered prices, you’ll find there’s a very benign inflation outlook,” Marcus said.
Bond yields have fallen on increasing speculation the Reserve Bank may cut rates again by year-end, and Marcus’ comments will likely add to such bets.
The bank’s main repo rate is currently at 5.5% after reductions of a total 650 basis points between November 2008 and end-2010.
Slower second quarter
The economy grew by a robust 4.8% year-on-year (y/y) in the first quarter but Marcus said all indications were that second-quarter numbers next week would be weaker.
Retail sales growth was also at 2.2% y/y in June, suggesting household spending remains constrained.
But Nomura emerging markets analyst Peter Attard Montalto said a rate cut was not a foregone conclusion.
“They will require more than a soft Q2 domestic number - which was already expected at the last meeting - before cutting,” he said.
“As with the hurdles to get over for hiking, so too the hurdles before cutting are very high,” he said, adding the global economy would have to be negative enough to start hitting exports for the Reserve Bank to cut rates.
July’s inflation figures will also be released Wednesday and the market expects CPI to tick up to 5.2% from 5.0% y/y in June.
After starting weaker on the day, the bond market was firmer after Marcus’ comments, with the 2015 yield falling 10 basis points to 6.46% on that on the 2026 yield falling 6.5 basis points to 7.88%.
“Though the market is becoming increasingly confident that a further rate cut could be on the cards, we maintain that we would have to see a significant slowdown in global and domestic economic activity and clear evidence that local policy rates are no longer accommodative to justify a further cut in rates,” analysts from Absa Capital said in a note.
“We therefore continue to look for the policy rate to remain on hold throughout 2011 with the first hike pencilled in for around the middle of 2012.”
