SA Reserve Bank governor Lesetja Kganyago (centre). Picture: DWAYNE SENIOR/BLOOMBERG
SA Reserve Bank governor Lesetja Kganyago (centre). Picture: DWAYNE SENIOR/BLOOMBERG

SA’s weak economic growth is due to unsustainable policies, and monetary policy alone cannot fix that, says Reserve Bank governor Lesetja Kganyago.

Data released on Tuesday showed Africa’s most-industrialised economy slumped into its second recession since President Cyril Ramaphosa came to power at the start of 2018, after GDP declined more than projected in the fourth quarter. That was largely blamed on power cuts that intensified in the period, knocking business confidence.

“The supply side of this economy is in deep trouble,” Kganyago said in a public lecture in Bloemfontein on Wednesday. “Unfortunately, these kinds of growth constraints are beyond the reach of monetary policy.”

For the full year, economic growth was 0.2%, the lowest since the global financial crisis, and half of what the Reserve Bank estimated in January when it cut its key interest rate by 25 basis points.

While the Reserve Bank targets inflation at 3%-6%, Kganyago has been making it clear for the past two years that it prefers to see price growth anchored close to the midpoint of the band.

With price growth at or less than 4.5% for 14 months and economic growth stuck below 1% since 2018, the central bank has been criticised by some politicians and labour unions who say it should do more to boost the economy and help tackle an unemployment rate of 29%.

The monetary policy committee’s projection model priced in only one more 25-basis-point cut late in 2020. However, after the recession news and the US Federal Reserve’s emergency rate cut on Tuesday to counter the impact of the coronavirus on output, calls for Kganyago to act have grown.

The monetary policy committee is scheduled to announce its next rate decision on March 19.

“If SA inflation were to moderate further, we would have more space to lower interest rates,” Kganyago said.

“But even with extremely low growth, inflation does not appear to be slowing further, and we see almost no risk of inflation missing our target from below, which has been a problem for many other countries.”

Bloomberg

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