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Johannesburg - Reserve Bank governor Gill Marcus said SA economic growth is disappointing as the monetary policy committee (MPC) kept interest rates steady at 5.5%.
The MPC is, however, "concerned at the potential impact of the current global turmoil on domestic prospects and stands ready to act appropriately", she said.
This was the fifth consecutive meeting where rates remained unchanged, after being reduced by 650 basis points between mid-2008 and December 2010. This keeps the rate at its lowest level in over 30 years.
The target inflation range is between 3% and 6%. The average inflation rate for 2010 was 4.3%, compared with 7.1% in 2009.
Marcus said the depreciation in the rand posed a potential "upside risk" to the inflation outlook, although the MPC still considered the risk "relatively moderate".
She said inflation is still expected to marginally breach the upper end of the target range in the final quarter of 2011, and to peak in the first quarter of 2012 at about 6.2% before returning to within the target range in the second quarter.
“Inflation is then expected to decline gradually and to measure 5.5% in the final quarter of 2013,” she said.
“The bank’s forecast of core inflation, which excludes food, petrol and electricity, shows a moderately rising trend peaking at around 5.9% in the second and third quarters of 2013.”
Marcus described SA growth as disappointing, warning that the lower trajectory did not bode well for job creation.
“This combination of declining growth and rising inflation poses a challenge to monetary policy going forward and is a feature being experienced in a number of emerging markets," she said.
Global turmoil
Emerging markets such as South Africa would still
experience faster growth but remained vulnerable to a significant slowdown in
developed markets, she said,
The Reserve Bank cut its growth forecast to 3.2% for 2011
from 3.7%. It sees the economy growing by 3.6% and 4.4% in
2012 and 2013 respectively.
“Downside risks are seen to come from the heightened risks to
global growth and its consequences for the domestic economy,” Marcus said.
She also warned of the risks posed by the turmoil in the global economy.
“The MPC discussions have taken place at a crucial time in the ongoing global financial crisis, now entering its fifth year. Many predictions of a return to recession in the advanced economies abound.”
“Growth in some of the advanced economies has weakened against the backdrop of financial market turbulence by the unresolved European sovereign debt crisis, although economic growth in emerging markets appears to continue to outperform that of the advanced economies.
“These economies are unlikely to emerge unscathed from the challenging environment.”
