05 FEBRUARY 2019
MPC decision to leave interest rates unchanged is correct
by Raymond Parsons: Professor at the NWU School of Business & Governance and a former special policy adviser to Busa.
The widely expected decision by the MPC to leave interest rates unchanged is the right one in present economic circumstances. Although it is mainly to structural economic reforms that SA must look for future sustained economic growth, neither should monetary policy hamper it at the current vulnerable point in the business cycle. Monetary policy should therefore continue to give the economic recovery, which is still slow and patchy, and 'sluggish' according to the MPC, the benefit of the doubt.
The range of forecasts of economic growth in SA in 2019 remain conservative, including from the SARB. The World Bank recently reduced its growth forecast for SA this year from 1.8% to 1.3% and MPC's expectation is of 1.7% GDP growth in 2019, with downside risks. The MPC has rightly expressed its concern about weak fixed capital formation inhibiting future growth potential. These sub-optimal growth rates emphasise the importance of underpinning the nascent economic recovery with appropriate policies.
Governor Lesetja Kganyago's additional comments at the MPC media conference on the role, status and autonomy of the SARB are welcome. It is essential that the constitutional mandate of the Bank to provide price stability in the interests of balanced and sustainable growth be protected, even more so at a time when SA is anxious to boost investor confidence.