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Johannesburg - Reserve Bank governor Gill Marcus said South Africa's
economic growth prospects will improve moderately, although the pace of
expansion is not enough to make a significant dent in unemployment.
She again cautioned that there will still be risks to inflation, with the biggest threats from rising global food prices and administered prices driven by surging oil costs.
Her prognosis for the economy was upbeat after the second monetary policy committee (MPC) meeting of the year. The MPC left the repo rate unchanged at 5.5%, which was widely anticipated.
"Domestic growth prospects appear to have improved moderately. Real gross domestic product grew by 2.8% in 2010, and at an annualised rate of 4.4% in the fourth quarter," she said.
The South African Reserve Bank (Sarb) has forecast gross domestic product higher and it expects it to average 3.7% in 2011 and 3.9% in 2012.
"These growth rates, while an improvement, are still too low to have a significant impact on the unemployment rate which measured 24% in the fourth quarter of 2010," Marcus said.
The MPC's hawkish tone suggests that rates will start increasing before the end of the year, as many analysts anticipate.
However, Marcus declined to comment on the timing of any rate increase.
Marcus said inflation would probably average 4.7% this year and 5.7% in 2012, higher than previous forecasts of 4.6% and 5.3% respectively.
“The MPC is of the view that the risks to the inflation outlook are on the upside. However, these risks and underlying pressures are mainly of a cost-push nature,” she said.
The central bank cut the repo rate by 650 basis points between December 2008 and December 2010, taking borrowing costs to their lowest in more than three decades.
Thursday’s verdict is the second time it has left rates on hold. All 21 economists polled by Reuters last week predicted the move.
Consumption expenditure growth would remain relatively robust but is unlikely to accelerate to excessive levels in the short term, she added.
The decision was widely expected by analysts.
Efficient Group economist Dawie Roodt said Marcus had made a “pretty low-key, non-event kind of speech. But, reading between the lines, I think the Sarb is concerned about inflation going forward."
Isasc Matshego, senior economist at Nedbank, said its forecast for the next rate hike is for the first quarter of next year. “But judging by the tone of the governor's speech, it could be sooner than that."
KADD Capital economist Elize Kruger expected a rate hike at the end of the year, at the earliest.
“The key thing to watch out for in the next few months will be if there's any form of a secondary effect.
"It's clear that the bank won't be over-eager to increase rates; they will probably look through the first-round effects as far as possible, then rather see what's happening on the secondary side of the pricing determination.”
She again cautioned that there will still be risks to inflation, with the biggest threats from rising global food prices and administered prices driven by surging oil costs.
Her prognosis for the economy was upbeat after the second monetary policy committee (MPC) meeting of the year. The MPC left the repo rate unchanged at 5.5%, which was widely anticipated.
"Domestic growth prospects appear to have improved moderately. Real gross domestic product grew by 2.8% in 2010, and at an annualised rate of 4.4% in the fourth quarter," she said.
The South African Reserve Bank (Sarb) has forecast gross domestic product higher and it expects it to average 3.7% in 2011 and 3.9% in 2012.
"These growth rates, while an improvement, are still too low to have a significant impact on the unemployment rate which measured 24% in the fourth quarter of 2010," Marcus said.
The MPC's hawkish tone suggests that rates will start increasing before the end of the year, as many analysts anticipate.
However, Marcus declined to comment on the timing of any rate increase.
Marcus said inflation would probably average 4.7% this year and 5.7% in 2012, higher than previous forecasts of 4.6% and 5.3% respectively.
“The MPC is of the view that the risks to the inflation outlook are on the upside. However, these risks and underlying pressures are mainly of a cost-push nature,” she said.
The central bank cut the repo rate by 650 basis points between December 2008 and December 2010, taking borrowing costs to their lowest in more than three decades.
Thursday’s verdict is the second time it has left rates on hold. All 21 economists polled by Reuters last week predicted the move.
Consumption expenditure growth would remain relatively robust but is unlikely to accelerate to excessive levels in the short term, she added.
The decision was widely expected by analysts.
Efficient Group economist Dawie Roodt said Marcus had made a “pretty low-key, non-event kind of speech. But, reading between the lines, I think the Sarb is concerned about inflation going forward."
Isasc Matshego, senior economist at Nedbank, said its forecast for the next rate hike is for the first quarter of next year. “But judging by the tone of the governor's speech, it could be sooner than that."
KADD Capital economist Elize Kruger expected a rate hike at the end of the year, at the earliest.
“The key thing to watch out for in the next few months will be if there's any form of a secondary effect.
"It's clear that the bank won't be over-eager to increase rates; they will probably look through the first-round effects as far as possible, then rather see what's happening on the secondary side of the pricing determination.”
