ROLLING power blackouts in South Africa risk dragging manufacturing back into recession, just as the industry recovers from strikes, complicating the Reserve Bank’s job as it seeks to raise interest rates.
Investors have pushed out their expectations of the first rate increase, with forward-rate agreements used to speculate on borrowing costs pricing in a 25 basis-point adjustment in six months’ time. At the end of March, they signaled an increase in July.
Manufacturing output, which makes up about 13 percent of the economy, contracted 0.5 percent in February from a year earlier as inadequate power generation capacity forced Eskom to cut supplies. While Governor Lesetja Kganyago has indicated the Reserve Bank’s willingness to raise interest rates to curb inflation pressure, a weaker growth outlook may give policy makers reason to proceed more cautiously.
“The Reserve Bank is between a rock and a hard place,” Busisiwe Radebe, an economist at Nedbank, said last week. “The growth thing, I think, will convince them to actually keep these rates lower for longer.”
South Africa’s economy expanded 1.5 percent last year, the slowest pace since a 2009 recession, and will probably grow 2 percent this year, according to government estimates. Manufacturing expanded for the first time in four quarters in the three months to December, helping to boost gross domestic product by an annualised 4.1 percent.