Pretoria - The mood of the SA Reserve Bank's Monetary Policy Committee
(MPC) indicated there would be no further significant interest rate
cuts, SARB governor Tito Mboweni said on Thursday.
This, he said, was due to the "stickiness" of inflation.
He was addressing a media briefing in Pretoria at which he
announced the MPC had cut the repo rate by 100 basis points to 7.5%.
According to the governor, the MPC had "probably done as much as
we could".
"But
you never know, so don't crucify me on this," he added.
"The general feeling is we have so far probably done quite enough. And we
must remember the monetary policy transmission mechanism must be forward-
looking and not backward-looking," he said.
Chief economist from Efficient Group, Dawie Roodt, interpreted the comments
of the governor as preparing the market for the fact that a rate cut of 50
basis points, rather than 100, could be expected if the MPC decided to cut
rates again.
Said Mboweni: "The discussion was quite intense that led to the decision
and there were, as usual, different viewpoints at the start of the meeting and
at the end of the conversation we came to a unanimous decision."
"Given the kind of stickiness we have seen in the inflation outlook, the
mood in the committee has not been for any further significant reductions in
the repo rate," he said.
Mboweni said that the MPC's decision was informed by the fact that the
domestic output gap has widened and is expected to contribute to an improved
inflation outlook "notwithstanding some current inflation inertia".
He said the MPC thus expected the downward trend in inflation to continue
despite some inertia in the near term and that there appears to be a moderate
improvement longer term.
He said the bank did not want to commit to any specific levels, but would
rather look at probability distributions when it came to inflation projections.
However, he noted the main upside risk to the inflation outlook originated
from cost-push pressures, and in particular from electricity price pressures.
"Eskom applied for a 34% increase in electricity tariffs, but there is
still some uncertainty about the final adjustment," said Mboweni.
On the growth front, Mboweni said the negative trend in GDP growth is set
to continue into the second quarter, although at a more moderate pace.
"Financial market conditions appear to have become less restrictive, but
there are few convincing indications the recovery will be quick. A longer
period of slow, below potential growth is likely," he said when referring to
the global economy, which he said was a key factor behind any improvement
locally.
"Since the beginning of the year the rand has appreciated by around 13% on
a trade-weighted basis. While the rand, along with other currencies, remains
vulnerable to further possible bouts of risk aversion, the risk to the
inflation outlook has been reduced by the relative strength of the rand," he
concluded.
- I-Net Bridge, Sapa and Reuters