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South Africa’s economy faces major challenges: Central bank
November 11, 2017
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JOHANNESBURG: South Africa’s economy faces major challenges and government needs to win back the confidence of businesses and investors by tackling policy uncertainty and corruption, central bank governor Lesetja Kganyago said on Thursday.

Kganyago said in a speech at an investor conference in New York that weak business confidence had shaved an estimated one percentage point off South Africa’s economic growth last year.

He said that the central bank would like to see inflation expectations anchored at around 4.5 per cent, compared with 5.1 per cent now.

The volatile rand currency is the biggest risk to inflation forecasts, Kganyago said.

“Inflation today in South Africa is within the target.

The highest it should be in terms of our forecast is 5.2 per cent,” he said in a subsequent interview with Reuters.

“That gives us room within the inflation target band...Inflation could rise but would remain within our inflation target,” Kganyago said.

The Governor of the South African Reserve Bank deflected questions on where he thought interest rates would move, saying there is no target.

The central bank kept its benchmark repo rate at 6.75 per cent on Sept. 21, defying expectations at the time of a cut based upon easing inflation pressures and a sluggish recovery from a recession in the first half of the year.

“Everybody talks about are you close to neutral or off neutral? When the world over, nobody knows what neutral is because the world as we know it is different from the world we knew before the global financial crisis. Everybody is trying to find neutral,” he said.

The central banker, in his position since 2014, said that inflation would remain in the 3 to 6 per cent target zone for the next two years.

“We are currently at 4.8 per cent and the outlook is that inflation will average 5 per cent this year. But we still expect to reach the bottom of 4.6 per cent in the first quarter of next year. Over the policy horizon of 2018 and 2019, the highest inflation will be is 5.2 per cent for the year,” he said.

With inflation remaining subdued, Kganyago also highlighted the improvements in the narrowing current account deficit. He said indications are that for the third quarter it should remain, at worst in the 2 per cent area.

“And at best could actual decline as low as 1 per cent.

Reuters

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