Marcus warns of wage-spiral

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GillMarcusBlue Independent Newspapers. Reserve Bank governor Gill Marcus. Photo: Simphiwe Mbokazi.

Johannesburg - South Africa’s central bank is concerned that labour tensions are adding to pressure on inflation as wage demands increase and the rand weakens, Governor Gill Marcus said.

The mandate of the Reserve Bank remains price stability and future interest rate decisions will be “highly data-dependent,” Marcus said in a speech at the bank’s annual general meeting today in Pretoria, the capital.

The bank’s Monetary Policy Committee raised the benchmark repurchase rate by a quarter of a percentage point to 5.75 percent last week, even as it forecast economic growth will slow to 1.7 percent this year.

Inflation, which was unchanged at 6.6 percent in June, is forecast by the bank to remain outside the 3 percent to 6 percent target band until the second quarter of next year.

“The committee remains concerned about the upside risks to the inflation outlook and the increased risks from a wage-price spiral in the context of the current difficult labour relations environment,” Marcus said.

The MPC is worried that wage settlements in excess of 10 percent will become “the economy-wide norm.”

Africa’s second-largest economy contracted an annualised 0.6 percent in the quarter through March amid a five-month platinum-mining strike that caused output to plunge.

A week after miners went back to work, more than 220,000 employees in the metals and engineering industries began a walkout that’s disrupted manufacturing production and further threatens economic growth.

 

Core Mandate

 

“The MPC will remain focused on its core mandate of price stability, but will also be mindful of the impact of its policy actions on economic growth,” Marcus said.

“Many of the problems that the country faces are not within the purvey of the bank’s mandate, nor does the bank have the proxy levers to address these issues.”

Labor turmoil and a widening in the current-account deficit have contributed to a weakening in the rand, causing it to diverge from its emerging-market peers, Marcus said.

“The environment for monetary policy became increasingly complex under these conditions, with the inflation outlook deteriorating as the economy weakens,” she said.

The rand was trading at 10.5309 against the dollar as of 11:37 am in Johannesburg from 10.5278 before Marcus began speaking.

The yield on the 2026 bond fell 3 basis points to 8.17 percent. - Bloomberg News


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