EDITORIAL: Reserve Bank’s cheap money no cure
For many, the question isn’t whether the Bank is inconsistent, but whether it should have gone further to help an economy in free fall
Central banks aren’t supposed to surprise the markets by moving against the consensus view, as it suggests that their forward guidance — provided through their public commentary and previous rates decisions — has been inconsistent or misleading.
So there were a few grumbles when the Reserve Bank cut the repo rate to 6.25% last week, since analysts felt conditions hadn’t changed materially since November, when the Bank stayed put.
Ordinary South Africans were grumbling for the opposite reason: one 25 basis point cut will do little to revive an economy where inflation and growth are slowing in tandem. For many, the question isn’t whether the Bank is inconsistent, but whether it should have gone further to help an economy in free fall.
The Bank’s model is predicting another rate cut in the final quarter. But if growth and inflation remain low, the Bank could cut twice more in 2020.
But whether even this would galvanise growth is unclear. SA’s growth is stuck because of structural shortcomings, like its costly and unreliable power supply, low levels of fixed investment, weak productivity and skills shortages.
A few rate cuts would certainly be good for sentiment; they might even nudge some projects over the line, but it will take more than cheap money to fix this economy. If only it were so easy.