The South African Reserve Bank (SARB) “might have made a different decision” about interest rates last week, if economic growth was not so weak, according to Deputy Governor Kuben Naidoo.
Naidoo shrugged off the pressure from some quarters to cut interest rates to improve economic growth saying the SARB is not the reason the economy is growing at 0.7%.
The Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5% last week, citing an expected increase in inflation later in the year and the weak economic growth environment.
The SARB also slashed its July outlook of 1.2% gross domestic product (GDP) growth forecast in 2018 to 0.7%.
Naidoo told a media lunch on Friday - the day after the decision to hold interest rates steady - that the central bank doesn’t just consider the last six months in its decision, but also that the previous 53 months have shown a negative growth trend.
The ANC released a statement on Thursday calling on the central bank to take the poor into account when making its decision on interest rates. The ruling party later retracted the statement and confirmed the independence of the SARB.
SARB governor Lesetja Kganyago was jovial as he answered journalists' questions about the contradictory ANC statements, saying he liked "the second one”, which was released by the ANC sub-committee head for economic transformation Enoch Godongwana.
Taking a more serious tone, Kganyago said he is “a very lucky governor” as he has never had a president who says he’s “not thrilled” by the SARB’s decisions.
In August, US President Donald Trump said in an interview with Reuters that he was “not thrilled” with the US Federal Reserve under chairperson Jerome Powell, for raising interest rates.
Central banks in emerging markets such as Turkey and Argentina have also come under political pressure in recent weeks, amidst currency crises.
Kganyago, however, confirmed that both President Cyril Ramaphosa and former president Jacob Zuma never came to him “and quietly said” they wanted changes made to interest rate levels.
“There is an understanding of what the Constitution has tasked the SARB with,” Kganyago said.
He added that, while Thursday’s decision had been close - with three MPC members preferring a 25-basis point or a quarter of a percentage point interest rate hike, and four choosing to kept it unchanged - there was no discussion to cut borrowing costs.
“You can only get low interest rates with low inflation,” Kganyago explained.
He said that keeping inflation within the target band of 3% to 6% is in the public interest as rising inflation hikes government debt service costs as the price of bond yields rise.
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