Excerpt from the statement by Gill Marcus, Governor:
Since the previous meeting of the Monetary Policy Committee, the headline inflation rate has returned to within the inflation target range. Despite this favourable development, inflation is expected to remain uncomfortably close to the upper end of the target band. Moreover, the upside risks to the inflation outlook remain elevated, dominated by uncertainties primarily relating to both the timing and the speed of the tapering of the US Fed’s bond purchasing programme.
The domestic growth outlook remains fragile, with third quarter growth expected to have been adversely affected by the protracted work stoppages in the motor vehicle sector in particular, which also contributed to a decline in exports. Both business and consumer confidence remain at low levels.
Compounding the risks to the exchange rate is the stubbornly wide current account deficit, notwithstanding recent revisions to the trade data. The deficit increases South Africa’s sensitivity to global spillover effects.
We need to take advantage of the depreciated exchange rate and not allow the benefits to be eroded through higher wage and other input prices. Action will be required should the adjustment mechanism not operate effectively.
The Monetary Policy Committee continues to face the dilemma of upside risks to inflation against a backdrop of a weaker growth outlook and a possible further depreciation of the currency. Given the increased upside risks to the outlook, we do not see room for further monetary accommodation.