Speaking after the Reserve Bank Governor’s announcement this afternoon, SEIFSA Chief Economist Henk Langenhoven said that the Governor’s decision was motivated by the perceived lower inflation risks coupled with sluggish national and international economic growth.
“The MPC clearly wants monetary policy to be a stabilising factor in the economy, with fiscal policy having to be reined in from previous excesses. On balance, it seems as if an even keel has been reached as far as the domestic economy is concerned, and the expected positive impact on inflation from lower oil prices has been important considerations,” Mr Langenhoven said.
He added that the MPC was acutely aware of the fact that international monetary policy stances would have to ‘normalise’ after the expansionary phase and that South African interest rates will have to follow suit, but the slower than expected recovery in international growth performances seemed to have postponed this for the time being.
“Although detrimental to demand for South African exports, this gave some breathing space not to add insult to injury by having to raise interest rates. Capital flows are under intense scrutiny, as well as the commodity trade situation, so as to anticipate the impact on the rand exchange rate,” Mr Langenhoven said.
Mr Langenhoven added that the Governor’s understanding of the trends in manufacturing and specifically the metals and engineering sector was heartening. The stable hand at the helm was greatly welcomed.