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‘Our policy options are constrained’

Johannesburg - South Africa is feeling the effects of the global downturn but is constrained in the policy options it has to deal with their impact, Reserve Bank Governor Gill Marcus said on Tuesday.

The central bank unexpectedly cut its benchmark interest rate to a 40-year low of five percent earlier this month, citing a weaker economic outlook, but warned monetary easing on its own would not solve the country's challenges.

(File image) South African Reserve Bank Governor Gill Marcus. Photo: Mxolisi Madela. Credit: Independent Newspapers

“The global environment in which we find ourselves is extremely difficult and is likely to remain so for a good number of years,” Marcus told a fund-raising dinner on Tuesday.

“In such an environment, South Africa's policy options are constrained... Both monetary and fiscal policies have less room for manoeuvre than was the case in 2008.”

The recent rate cut should be seen in the context of alleviating some of the strains in the economy, Marcus said, but added: “Monetary policy cannot solve the underlying problems of the economy, which will still exist even if the global economy recovers sooner than expected.”

Marcus has cautioned that this month's rate reduction, after the central bank held rates unchanged for nearly 20 months, does not necessarily signal the start of a loosening cycle.

She listed unemployment, infrastructure constraints and poor electricity supply as some of the key challenges facing the economy. - Reuters

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