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The decision by the SA Reserve Bank (SARB) to leave interest rates unchanged again is not unexpected. While BUSA believes that the SARB, in most of its MPC statement today, itself made a good case for a further reduction in interest rates, BUSA accepts that there is room for difference of opinion as to whether it should happen now or later. The decision is ultimately a judgment call based on the balance of risks.
Deteriorating global economic conditions and growing uncertainty about the outlook in the Eurozone economy nonetheless call for a flexible monetary response, as has been the case in countries like Brazil and Australia recently. BUSA is therefore reassured by the Reserve Bank commitment to constantly assess changes in the balance of risks on which monetary policy in South Africa is based. The fact that the SARB has further reduced its economic growth forecasts is a warning signal about the sluggish performance of the SA economy.
BUSA emphasises frequent reference in MPC statements to the role of administered prices – especially electricity tariffs - in discouraging the SARB from cutting interest rates further. It is clear that the “bunching up” and cumulative impact of administered prices is having a serious negative impact on South Africa’s economic performance and requires urgent action from the government and private sector alike.