According to last week’s announcement from South African Reserve Bank (SARB) governor, Lesetja Kganyago, the rate hike cycle could resume despite the current bleak economic outlook.
The bold statement comes after the last two meetings of the monetary policy committee (MPC) where interest rates were kept on hold.
It was further reported that South Africa is in danger of entering into its first recession, after contracting 1.2 % in the first quarter. This due to several factors including the severe drought,decreasing commodity prices, threats of a further downgrade to junk status and the weak Rand, which had reduced by 20% against the US dollar. .
Despite the MPC conveying their preparedness to deal with inflation pressures should the cycle resume, they are also mindful of the weak state of the current economy.
The average growth at the moment for this year has been zero and this in itself is accompanied by additional pressures and economic strain.
Having just come out of a series of tough ratings reviews, of which came out of fairly unscathed, all eyes are on the next bout of reviews scheduled for December.
“Reserve Bank governor Lesetja Kganyago said SA faced the typical monetary policy dilemma of slow growth with rising inflation. He said monetary policy would be sensitive to the fragile state of the economy, but the MPC was concerned that failure to act against heightened inflation pressures and risks will cause inflation expectations to become entrenched at higher levels", reported BD Live.
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