SA Reserve Bank sees no need for emergency rates meeting
JOHANNESBURG - South Africa’s central bank sees no need for an emergency meeting on interest rates and will wait for its regular gathering on March 19 to announce a policy decision, Governor Lesetja Kganyago said.
Calls for the central bank to cut rates have increased this week after data on March 3 showing the economy slumped into a recession in the fourth quarter. The U.S. Federal Reserve announced an emergency rate cut the same day to counter the impact of the coronavirus outbreak on output.
“One policy tool that we don’t have is panic,” Kganyago said Wednesday in the central city of Bloemfontein. “We have a Monetary Policy Committee meeting scheduled for later this month and we will then assess all the information and make a decision based on that data.”
After the Reserve Bank reduced its key rate to a four-year low in January, its projection model suggested only one more 25-basis-point cut late this year. Kganyago said the MPC will consider the country’s economic data and give its view on the recession in two weeks.
“There was no need for us to call an emergency meeting,” he said. “You can’t call an emergency meeting and do nothing; you call an emergency meeting and you change rates.”
The response of central banks globally is due to their evaluation of the economic effects of the coronavirus, Kganyago said.
“Without a doubt the coronavirus will have significant impact on the global economy,” he said. “We as the South African Reserve Bank are currently assessing the channels through which it will impact the South African economy, and based on this assessment we will take appropriate steps in accordance with our constitutional mandate to mitigate the risks.”
The rand weakened 0.2% to 15.2934 per dollar by 7:02 a.m. in Johannesburg on Thursday.
While the Reserve Bank targets inflation at 3% to 6%, Kganyago has made it clear for the past two years that it prefers to see price growth anchored close to the midpoint of the band. With price growth at or less than 4.5% for 14 months and economic growth stuck below 1% since 2018, the central bank has been criticized by some politicians and labor unions who say it should do more to boost the economy and help tackle an unemployment rate of 29%.
The market agrees. Forward-rate agreements starting in one month are now pricing in 32 basis points of cuts when the MPC announces its decision in two weeks.
“We don’t comment on forward-rate agreements; we will give our view on the 19th,” Kganyago said. The central bank’s “credibility is intact,” he said about criticism that the MPC should move faster on rate cuts to preserve its reputation.