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Johannesburg - It is too early to say how the current uncertainty in global markets will affect South Africa and how monetary policymakers should respond to it, Reserve Bank deputy governor Daniel Mminele said on Friday.
“I think it’s probably too early to tell what this holds in store for us,” he said, when asked whether the central bank could be forced to raise rates if the current global sell-off leads to significant capital outflows from South Africa.
“There are two scenarios: one is of major risk aversion but similarly ... we could easily find a situation where emerging markets may be considered relatively safe,” he said at a Reuters economist of the year event.
Global markets have seen a sell-off this week on worries that the global economy is on a slowdown and the debt crisis in Europe is worsening. Local markets have not been spared, with the Top-40 index hitting 11-month lows while the rand fell to a two and-a-half week low on Friday.
“The inflows we’ve seen into our bond market and emerging markets generally recently seem to point to emerging markets possibly being seen as a destination at the moment.
“How that would inform policy, what needs to be considered and changed or timing of any such actions is something that will be the function of what we monitor as we go forward and that will be taken into account when we sit down next time to consider the monetary policy stance.”
Government bonds yields have fallen to multi-month lows across the curve, mainly due to increased buying by foreigners.
The Reserve Bank has left the interest rates at 30-year lows this year, with analysts in the Reuters Econometer poll changing their consensus to a rate increase coming in the first quarter of next year, from previous expectations of a rise in November.
Mminele said recent economic indicators back the monetary policy committee’s view in July that the economy would not sustain the strong momentum of the 4.8% growth in the first quarter.
“The high frequency data and short-term indicators we’ve seen since, appear to suggest we are going to see certainly weaker numbers and the PMI number that we saw the other day is one example,” he said.
The purchasing managers’ index - a gauge of manufacturing activity - fell into contraction territory in July, suggesting the key sector in the economy is struggling.
“I think it’s probably too early to tell what this holds in store for us,” he said, when asked whether the central bank could be forced to raise rates if the current global sell-off leads to significant capital outflows from South Africa.
“There are two scenarios: one is of major risk aversion but similarly ... we could easily find a situation where emerging markets may be considered relatively safe,” he said at a Reuters economist of the year event.
Global markets have seen a sell-off this week on worries that the global economy is on a slowdown and the debt crisis in Europe is worsening. Local markets have not been spared, with the Top-40 index hitting 11-month lows while the rand fell to a two and-a-half week low on Friday.
“The inflows we’ve seen into our bond market and emerging markets generally recently seem to point to emerging markets possibly being seen as a destination at the moment.
“How that would inform policy, what needs to be considered and changed or timing of any such actions is something that will be the function of what we monitor as we go forward and that will be taken into account when we sit down next time to consider the monetary policy stance.”
Government bonds yields have fallen to multi-month lows across the curve, mainly due to increased buying by foreigners.
The Reserve Bank has left the interest rates at 30-year lows this year, with analysts in the Reuters Econometer poll changing their consensus to a rate increase coming in the first quarter of next year, from previous expectations of a rise in November.
Mminele said recent economic indicators back the monetary policy committee’s view in July that the economy would not sustain the strong momentum of the 4.8% growth in the first quarter.
“The high frequency data and short-term indicators we’ve seen since, appear to suggest we are going to see certainly weaker numbers and the PMI number that we saw the other day is one example,” he said.
The purchasing managers’ index - a gauge of manufacturing activity - fell into contraction territory in July, suggesting the key sector in the economy is struggling.
