Kganyago: Practical, urgent reforms needed to promote economic growth

The governor has taken note that key upside risks to the economy include rising water, electricity, food, and oil prices.

FILE: Reserve Bank Governor Lesetja Kganyago. Picture: GCIS.

JOHANNESBURG - Reserve Bank Governor Lesetja Kganyago says given the current economic vulnerabilities, practical and urgent reforms are needed to promote growth.

The governor has taken note of key upside risks to the economy, including rising water, electricity, food, and oil prices.

On Thursday, Kganyago announced that the MPC would keep the repo rate unchanged at 6.75%.

He said electricity supply constraints and weak business confidence would likely limit investment prospects.

“The MPC assessed that the risk to the growth forecast continues to be on the downside. Monetary policy actions will continue to focus on anchoring inflation expectations closer to the midpoint of inflation targets in the interest of balance and sustainable growth.”

The bank said at its last meeting in January that the risks to inflation, one of the main indicators it targets, were moderately on the upside.

The change in rhetoric reflects modest price increases in the past two months, of around 4% which is well within the Reserve Bank's 3% to 6% target range.

Kganyago said household expenditure was stronger than forecasted.

“Over the forecast period, growth in household expenditure is expected to decline to 1% in 2019 and 1.4% in 2020.”

Meanwhile, economists say the Reserve Bank's decision to keep the repo rate unchanged at 6.75% is in line with market expectations.

Chief economist at Nedbank Dennis Dykes said load shedding had already sliced any hope of economic growth.

“Unfortunately, I don’t think the pain is over. The negative effect is that it weighs on people’s confidence and it also means that companies that may not want to invest again until they see more security of energy supply.”

Stanlib chief economist Kevin Lings said the Reserve Bank was consistent in highlighting that the country’s lack of growth was not related to broader monetary policy.

“In other words, the lack of investments and consumer spending relates more to a weak level of spending in South Africa; the fact that companies are not investing and the fact that we’ve got a fairly high degree of uncertainty.