The Reserve Bank said on Tuesday that SA’s monetary policy stance remains broadly accommodative, and tolerating  higher inflation will do little to boost economic prospects in the long term.

Economic problems remain structural, and monetary policy cannot be controlled in the same way as inflation in the longer term, the Bank said in its annual report. 

“Tolerating higher inflation might work for a short period of time; however, as prices and wages start to increase faster than productivity, the higher inflation would leave the economy weaker over the longer term,” the Bank said.

SA’s weak economic growth and high unemployment have prompted calls for a more dovish stance from the Bank, and President Cyril Ramaphosa has had to emphasise repeatedly that the Bank’s independence is not under threat.

The Bank’s leading business cycle indicator picked up a little in April, compared with March's, providing a glimmer of hope that economic activity picked up in the second quarter. April's 0.7% rise is seen as a sign that second-quarter economic activity recovered a little after a tough first quarter. 

The index rose to 105.5 points in April, better than the 104.9 expected in a Bloomberg poll.

Bank data indicated some improvement in the outlook for growth in 2020, although further figures would be needed, said Investec chief economist Annabel Bishop.

The Bank was widely expected to cut interest rates by 25 basis points in July, but as the US Federal Reserve is expected to cut interest rates twice in 2019 the Bank might follow the July cut with a second cut, Bishop said. But the chances of this happening were low, she said.

The leading indicator is based on monthly movements in various economic indicators, such as interest-rate spreads, new passenger vehicles sold and job advertisements. It is watched closely as it moves in line with current economic growth; a rise in the indicator shows improvement in activity.

Five of the 10 available component time series increased, four decreased and one was unchanged.

However, the indicator in April was 0.3% lower than that of the previous April, an improvement on the 3.2% annualised contraction registered in January. It fell 2.2% in February and 1.6% in March.