Maintaining price stability will not be easy for the SA Reserve Bank
JOHANNESBURG – The rand’s slide in afternoon trade on Friday came with shocking fluctuations with the domestic unit breaching R19.05 to the US dollar for the first time.
The 2020 financial markets volatility, uncertainty, complexity, ambiguity are the scenarios of emerging markets and the global economy.
We can, therefore, affirm that we are officially in a global recession pending the Q1/2020 economic results. The Covid-19 pandemic and economic fallout, Fitch downgrading of the five South African commercial banks and the with last week’s credit rating downgrade of South Africa to “junk” status by Moody’s, is weighing heavily on the currency.
This junk status is so bad for South African investments and this will be a lesson to analysts who thought a junk status can be mitigated and cost to the markets. Funds invested in local bonds and equities will be flowing out as overseas pension funds according to the rules, are not allowed to invest in markets downgraded to junk status.
Less investment leads to fewer jobs and reduced economic growth. South Africa is expected to pay higher interest rates on foreign loans due to junk status. The impact of this complexity can make South Africa finishes this remaining four years of the sixth five-year term without recovering from this economic crisis.
The past 10 years have played a strong role in weakening the South African economic and institutional strengths leading to our economy failing to implement reforms recommended by institutional investors and rating agencies.
Compromising values leads to compromising goals. We hope future leaders have learned enough about leadership mistakes and training and development of a breed of great leaders will start 2020, as we reflect on reconnecting to the dream of a developmental state desired outcomes.
The primary objective of monetary policy in South Africa is to achieve and maintain price stability in the interest of sustainable and balanced economic development and growth. Price stability reduces uncertainty in the economy and, therefore, provides a favourable environment for growth and employment creation.
According to Tradingeconomics.com, South Africa main imports are machinery (23.5 percent of total imports), mineral products (15.1 percent), vehicles and aircraft vessels (10 percent), chemicals (10.9 percent), equipment components (8.1 percent) and iron and steel products (5.3 percent). This portrays a clear picture of an import-dependent economy and with the current rand situation, prices are expected to be higher for all imported products to our markets.
The worsening economic situation requires interventions by the SA Reserve Bank to further cut the repo rate with another 100 basis points and introduce additional measures to be applied by commercial banks such as repayments arrangements. Solutions to turnaround the economy needs to be expedited to ensure state-owned companies and businesses are reactivated before we don’t have a paracetamol tablets at public hospitals.