'Not unexpectedly, the MPC has again rightly left interest rates unchanged. The realistic and balanced assessment of the economic outlook by the SARB Governor, backed by a unanimous MPC view, made it clear that - given SA's current weak economic performance - there could be no question of hiking rates now. Even the latest credit rating agencies' concerns about the SA economy focus almost entirely on weak growth, the twin fiscal and trade deficits and Eskom, and not on monetary policy and inflation. Inflation is lower than it was when the MPC last met in January, although as the MPC indicates, it is expected to rise again in the months ahead.  In any case, it is hard to see how SA can successfully combat what is basically cost inflation as well as exogenous factors with the weapon of higher interest rates, without damaging economic growth, investment, employment and business confidence. The 'new normal' appears to be becoming a sluggish economy.

Globally, with the US economy on a different trajectory as the main exception, several other economies have recently cut interest rates. Even in the US softer-than-expected economic data gives reason for pause by the Federal Reserve on raising rates soon. The MPC statement correctly emphasized the cross-currents in the global economy. It must therefore be hoped that SA will not try again to second-guess or pre-empt US interest rate trends as we mistakenly sought to do last year, but rather wait until a real change occurs and react appropriately in the light of the prevailing economic outlook. In the meantime, with inflation likely to remain within the target range this year, SA interest rates should be left unchanged for as long as the current balance of risks persist.'

Issued by North West University