The Monetary Policy Committee’s (MPC’s) decision to leave interest rates unchanged at 7% was the right one in present economic circumstances, said North West University School of Business and Governance Professor Raymond Parsons.
He noted that the South African Reserve Bank (SARB) had yet again reduced its growth forecasts and was now only expecting the country’s economy to grow by 0.6% in 2016.
“The inflation outlook offered no new shocks, except perhaps for food prices. The SARB has correctly recognised that the persistent recent deterioration in growth, employment and other key indices have heightened the downside risks in a vulnerable economy and that a pause in the rising interest rate cycle is now appropriate,” he said.
He added that the SARB also acknowledged that general policy uncertainty remained an acute negative factor in the current economic outlook.
“There is no 'quick fix' to get the local economy out of its present doldrums. Several of the structural challenges are too deep for that to happen,” Parsons noted, adding that the overarching task now was to avert South Africa’s investment grading being downgraded to junk status next month.
Meeting this challenge required strong emphasis on the active and visible implementation of acceptable growth policies that would strengthen business and investor confidence and begin to turn the economy around.
“The basic solutions, therefore, lie beyond monetary policy alone but rather in policy direction as a whole,” Parsons said.