Mariam Isa
28 November 2008
Johannesburg — POLICY makers should take note of the significant slowdown in growth and the prospect of lower inflation when they made decisions, Reserve Bank governor Tito Mboweni said last night.
"Despite an inevitable slowdown in growth we do not expect recession at this stage," Mboweni told diplomats in Pretoria.
"However, the significant slowing is something policy makers have to take cognisance of."
Mboweni said the Bank was hopeful that news that inflation measured by CPIX fell to 12,4% last month from its peak of 13,6% in August was "the start of a consistent downward trend".
He repeated that the Bank's forecast suggested inflation should be back in the 3%-6% range by the second quarter of 2010.
"Indeed, if that is the case one would hope policy makers take that into account, whatever decisions they make."
The big question for the economy, which grew a meagre 0,2% in the third quarter of the year, was whether private sector investment would "stay the course" despite the global downturn, he said.
Many of SA's main trading partners -- including Europe, the US and Japan -- were forecasting "prolonged" recessions, which was worrying as they accounted for more than two-thirds of SA's manufactured goods, Mboweni said.
Expectations that emerging markets would escape the global crisis "relatively unscathed" had been proved "horribly wrong".
Mboweni was speaking after news that inflation at factories, mines and farms subsided to 14,5% last month -- below expectations and adding to the good news about SA's improving inflation outlook. Consensus forecasts had predicted the annual rise in the producer price index (PPI) would slow to 14,8% from 16% in September.
It was the second successive decline for producer prices and backed the downward trend in consumer prices, supporting speculation that there would be scope for interest rates to fall soon, perhaps even next month.
Mboweni said there were still "upside risks" to the inflation outlook. One was inflation expectations and the other was the weaker rand, which has slid more than 30% against the dollar so far this year. "Despite the deterioration, however, there is still an expectation inflation will decline significantly over the next two years."
Many analysts believe there is a growing chance the Bank will cut its key repo rate by half a percentage point to 11,5% next month.
Absa Capital economist Monale Ratsoma said, "This week's data could prove to be enough ammunition for the monetary policy committee members that are likely to argue for a rate cut at the December meeting."
Local markets have priced in the likelihood of a half percentage point cut in the Bank's key repo rate, which would take it down to 11,5%, but many analysts think the Bank will opt to wait until its first policy meeting next year .
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