As business confidence languished near its weakest levels in two decades, the SA Reserve Bank insisted that cutting interest rates is not a remedy for the country’s economies woes that are threatening the loss of its remaining investment grade.
While the central bank could act and provide some stimulus if there was a slack in growth, the extent to which low levels of credit growth, investment and confidence in the economy could be explained by tighter monetary policy was debatable, deputy governor Rashad Cassim told journalists on Wednesday.
“It becomes a big problem when you are trying to use interest rates to compensate for other, for want of a term, rigidities in the economy,” Rashad, the former head of the Bank’s research department who was promoted to be one of the deputy governors, together with Fundi Tshazibana, said.
The comments came almost a week after the Bank kept its repo rate unchanged at 6.5%, despite downgrading its 2019 growth forecast to 0.5% and inflation coming in well below the mid point of its 3% to 6% inflation.
The Bank, which sees inflation accelerating towards the upper end of the target, has come under political attack from elements who think it should do more for an economy struggling with an unemployment close to 30%. Subdued business consumer and business confidence and the Bank’s own business cycle indicator show little sign of a recovery anytime soon.
