By Ndumiso Mlilo.
JOHANNESBURG, Nov. 28 (News of the South Africa) – South African Reserve Bank (SARB) have called for the flexibility to change monetary policy stance to respond to the uncertain world.
The deputy governor of the South African Reserve Bank, Daniel Mminele was addressing the Bank of America’s Merrill Lynch Fixed Income conference in Johannesburg, South Africa on Friday. He said with local and global occurrences affecting the world financial markets, policy makers should be able to come up with countercyclical policies when uncertain incidents occur. Mminele said, “The operating environment for South Africa’s monetary policy has become increasingly complex, with growth and inflation dynamics being influenced by a range of global and domestic factors, which call for delicate trade-offs in terms of policy settings.”
He said while the period of low volatility seems to be over, there is a risk that the lift-off of rates in the US may occur sooner than expected. He said also there might some intensification of geo-political risks with while Eurozone and Japan seem to be normalising and the market relaxed. He noted, “All these factors are likely to increase volatility. This environment calls for continued vigilance from policy makers, and preparedness to respond to the fast-changing economic and financial markets environment, and readiness to act to changes one’s monetary policy stance when deemed appropriate.”
The deputy governor stated that with the country’s current account deficit any change in the capital inflows can have an effect in the country. He said what happens in other parts of the world have positively and negatively affected the domestic market. He also said, “it also calls for ongoing dialogue, exchange of information and appropriately calibrated communication in order to strengthen policy credibility.”
Mminele further stated that early this year, they started gradual, data-dependent, policy normalisation process. He said they will continue with that path accommodating any situations which affect the country’s inflation and economic growth. He also added, “While monetary policy should and in South Africa will play its role within the confines of its mandate, a concerted effort is needed by other key role players in agreeing and effectively implementing the necessary structural reforms that will deliver higher trend growth.”
The governor also said the country managed to balance the current account deficit after the great recession with the capital inflows which stabilised the rand. Mminele also suggested, “We are seeing a divergence of policy in the major advanced economies. This suggests that central banks need to weigh the spill-over effects of tightening policy in the US against accommodative policies in Europe and Japan in determining their own monetary policy trajectories. Our sense is that the impact of US tightening will dominate, but that it would be tempered somewhat by ECB and BOJ stimulus plans.”
He said the country’s current account and fiscal deficits and weak economic growth gives them a headache in normalising the monetary and fiscal policy
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