Reserve Bank deputy governor Daniel Mminele. Picture: Simphiwe Nkwali/ Sunday Times
Reserve Bank deputy governor Daniel Mminele. Picture: Simphiwe Nkwali/ Sunday Times

A higher dose of monetary stimulus will likely result in greater policy uncertainty and higher interest rates in the longer term, deputy Reserve Bank governor Daniel Mminele says.

Speaking at the S&P Dow Jones Indices seminar in Johannesburg on Tuesday, Mminele addressed the Bank’s mandate in the wake of the ANC election manifesto saying monetary policy has to take employment and economic growth into account.

“These suggestions may miss the key channels through which monetary policy best serves the goal of long-term economic development,” he said, adding that SA’s monetary policy framework is flexible and takes the outlook for economic growth and its impact on inflation into account.

“Trying to ‘kick-start’ economic growth and employment through a larger dose of monetary stimulus would probably have only a short-lived impact on activity,” Mminele said.

It would also likely have impact on the current account, policy uncertainty and inflation expectations, which would likely result in higher interest rates, he said.

Meanwhile, Mminele said SA’s inflation expectations have begun to subside and have moved toward the 4.5% midpoint of the target range. Despite this, the Bank remains concerned about risks to the outlook.

“Demand remains weak and credit creation is sluggish, and, in many countries, these would be sufficient conditions for inflation to fall further. Equally, many risks, both external and internal, could result in higher inflation should they materialise,” Mminele said, citing exchange rate volatility; an uncertain oil price outlook amid geopolitical tensions; higher administered prices from electricity and water tariffs; and domestic policy uncertainty.

The Bank’s monetary policy committee kept the repo rate unchanged at 6.75% last month after raising it 25 basis points in November, citing lower oil prices and a firmer rand. Said Mminele, “The jury is still out on several of the potential causes of this latest disinflationary trend, and whether they will last.” 

menons@businesslive.co.za