The Reserve Bank’s monetary policy decisions will be guided by whether the current inflation rate increases are permanent or transitory.
Reserve Bank governor Lesetja Kganyago says the bank is keeping an eye on both international and local inflationary trends.
Economists believe that the Bank is priming for a 25 basis points increase in November.
One of the serious concerns in the country is the low growth environment and rising inflation.
Kganyago on current inflation upward moves:
Outflow of capital
Kganyago says South Africa like many other emerging market economies has seen an outflow of capital in the equity market in the wake of the pandemic.
He says the effects of foreign capital outflows were offset by a strong domestic investor market. Kganyago says the Bank will eventually have to exit policies adopted to mitigate the impact of the pandemic.
One of the Bank’s responses to COVID-19 was to lower the repo rate to the current historic level of 3.5 percent. Kganyago was speaking at the Bank of International Settlement’s virtual centenary conference on policy challenges in the wake of the COVID-19 pandemic.
“In the past, we would have seen massive bond outflows but this time we had massive equity outflows. Now equity outflows are very related to the growth story and in the current situation the growth story is very much a vaccination story. Vaccination has very much become economic policy and so those countries that were able to vaccinate faster have actually been able to recover faster.”
Earlier in October, the Bank noted that the easing of lockdown restrictions and the boom in commodity prices has supported a faster recovery in the local economy.
But it also said that increased demand, coupled with supply bottlenecks could keep price pressures elevated. The Reserve Bank warned commodity-producing economies like South Africa against complacency due to strong commodity prices as the trend is expected not to last.
