Inflation under control - Kganyago

Reserve Bank Governor Lesetja Kganyago. Photo: Simphiwe Mbokazi

Reserve Bank Governor Lesetja Kganyago. Photo: Simphiwe Mbokazi

Published Apr 26, 2017

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Johannesburg - South African inflation is under control

and the central bank will maintain a policy to keep it low to protect the poor

and ease inequality, Reserve Bank Governor Lesetja Kganyago said.

Pursuing other priorities, such as reducing unemployment,

has been shown in other countries to cause “widespread economic damage,”

Kganyago said in a speech at the University of KwaZulu-Natal in the coastal

city of Durban on Tuesday. The central bank expects price growth to slow to 5.4

percent next year and 5.5 percent in 2019, he told reporters at the event.

“The best way to get permanently lower interest rates is

to bring down inflation -- and then keep it low and predictable,” the governor

said. “Inflation is under control and if it is under control it reduces poverty

and inequality.”

Kganyago’s comments come after South African inflation

slowed to 6.1 percent in March, and the bank expects it to decelerate to below

6 percent in the second quarter of the year. Even so, price growth remains

outside the governor’s target range of 3 percent and 6 percent, where it has

been for seven months.

Read also:  Inflation continues to moderate

“We have made it very clear that as far as we are

concerned we would like to see inflation return sustainably to within the

inflation target range and that is what we are focused on,” Kganyago said.

 Price increases 

The Monetary Policy Committee has kept the benchmark

repurchase rate unchanged since last March after raising it to 7 percent to try

and stem price increases. Forward rate agreements, used to speculate on

borrowing costs, are pricing in a 25 basis point rate cut by the end of the

year. 

Monetary policy has little influence over labor markets

and lower interest rates are unlikely to reduce unemployment, which in South

Africa was 26.5 percent in the fourth quarter of last year, Kganyago said.

Kganyago and newly appointed Finance Minister Malusi

Gigaba are in charge of reviving an economy that the World Bank expects to

expand less than 1 percent for the second year in a row. The central bank has

forecast an expansion of 1.2 percent. President Jacob Zuma’s decision to fire

Finance Minister Pravin Gordhan at the end of March prompted S&P Global

Ratings and Fitch Ratings to cut South Africa’s credit rating to below

investment grade, causing the rand to plunge against the dollar.

The currency has since made up some of its losses, and

traded 0.2 percent weaker at 13.0859 against the dollar as of 8:21 a.m. in

Johannesburg.

Zuma has touted a policy of “radical economic

transformation” to revive growth and reduce inequality. The Reserve Bank’s

policy of targeting inflation is in line with the strategy of improving

inclusive growth for all South Africans, Kganyago said.

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