Reserve Bank Governor Lesetja Kganyago says the virus is only one of a series of current risks to the economic recovery. He says other risks include rising inflation, weaker commodity export prices, and the long-term impact from the pandemic and the July unrest.
On Thursday the Reserve bank’s monetary policy committee decided to keep the repo rate unchanged at 3.5% while the lending rate also remains unchanged at 7%. Kganyago says despite continued upside risks, the monetary policy committee expects the inflation rate to stay close to the midpoint of the inflation target. The Bank upwardly revised its growth forecasts and is now expecting GDP to grow 5.3% in 2021 and 1.7% in 2022.
“Given the medium and long term projections set out above, a weaker currency, higher domestic import tariffs, and escalating wage demands present further long-term upside risks to the inflation forecast. Average expectations of future inflation remain unchanged at 4,2% for 2021 and 4,4% for 2022.”
South African Reserve Bank keeps repo rate unchanged at 3.5%
Kganyago says the lagging rate of vaccination in many emerging markets and developing economies like South Africa will delay the rate of global economic recovery.
“Recoveries in emerging market and developing economies are expected to lag those in advanced economies, in large part due to a slower pace of vaccinations. Although policy settings in advanced economies remain accommodative, the spread of the Delta variant, higher global inflation, and uncertainty about the normalisation path for interest rates continue to cause financial market turmoil and capital flow volatility.”
Kganyago says the social unrest that took place in July and the pandemic are likely to have lasting effects on investor confidence and job creation.
“While more South Africans have re-entered the jobs market as economic activity resumed, the loss of jobs suggests persistent adjustment and sustained weakness in some sectors. Household spending remains healthy, however, in line with better than expected salaries and wages, rising asset prices, and low-interest rates.”
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