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.