SARB expects relatively slow tightening

Comment on this story
GillMarcusHand Independent Newspapers South African Reserve Bank Governor Gill Marcus. Photo: Simphiwe Mbokazi.

Pretoria - South Africa's central bank will probably raise interest rates more slowly than it did in a tightening cycle six years ago due to the economy's current slow growth, the bank said, dampening expectations of steep hikes in the repo rate.

The South African Reserve Bank raised rates for the first time since 2008 in January, hiking the repo rate by 50 basis points to 5.5 percent in a bid to stabilise prices while the currency plummeted.

Speaking at a dinner on Thursday, central bank Governor Gill Marcus said that the environment was different to 2008 and that previous market expectations of a further 200 basis points worth of rate hikes were overdone.

“Today we have a very different situation, with the output gap being negative and subdued growth in both household consumption and expenditure and credit extension,” Marcus said.

“We would therefore expect the monetary policy response to be more moderate, given our concerns about the slow growth of the economy.”

Africa's largest economy is struggling to gain traction after a 2009 recession.

However, Marcus said the moderate base case she was envisaging was not an unconditional commitment on the part of the bank and would depend on data and other global developments.

“It also does not mean that there will be adjustments at every meeting or that if rates are increased, that they will be increased by the same amount,” she said.

Marcus conceded that the current period of heightened uncertainty and volatility in global markets made the bank's own forecasts more uncertain and subject to greater risk.

While the bank has recently tended to change rates in 50 basis-point moves, she said it could use smaller increments.

“(The moderate policy base case) does not mean that there will be adjustments at every meeting or that if rates are increased, that they will be increased by the same amount.”

The rand currency has plummeted along with other emerging market currencies, testing a string of five-year lows this year.

The central bank has warned of significant inflation risks from the weak currency.

The Reserve Bank will hold its second meeting of the year in two week's time. - Reuters

sign up

Comment Guidelines

  1. Please read our comment guidelines.
  2. Login and register, if you haven’ t already.
  3. Write your comment in the block below and click (Post As)
  4. Has a comment offended you? Hover your mouse over the comment and wait until a small triangle appears on the right-hand side. Click triangle () and select "Flag as inappropriate". Our moderators will take action if need be.

  5. Verified email addresses: All users on Independent Media news sites are now required to have a verified email address before being allowed to comment on articles. You are only required to verify your email address once to have full access to commenting on articles. For more information please read our comment guidelines