The South African Reserve Bank\u2019s forecasting model suggests there might be room for interest rate cuts in the next year or two, given how weak the economy is, Governor Lesetja Kganyago said.<\/p>\n
While the central bank can play a role to help economic growth, decisions should be supported by other policies and structural reforms, Kganyago said in a copy of a speech posted on the Reserve Bank\u2019s website.<\/p>\n
The central bank\u2019s inflation-targeting mandate drew renewed criticism from political parties and labor unions last week after news that the economy contracted the most in a decade in the first quarter.<\/p>\n
The ruling African National Congress\u2019s secretary-general, Ace Magashule, said the party had decided the mandate must be expanded to include growth and job creation — later denied by leading ANC officials.<\/p>\n
\u201cTo make a marked impact on potential output and employment levels, what is required is the implementation of prudent macroeconomic policies underpinned by credible structural policy initiatives,\u201d Kganyago said.<\/p>\n
\u201cTough times call for tough actions. Monetary policy is not a substitute for structural reform.\u201d<\/p>\n
The central bank left its key interest rate at 6.75% last month. Two of the five MPC members favored a cut, marking the first time in more than a year that anyone on the panel was in favor of lower rates.<\/p>\n
The quarterly projection model currently prices in one 25 basis point cut by the first quarter of 2020, while forward-rate agreements foresee a more than 80% chance of a quarter-point cut next month.<\/p>\n
The central bank remains committed to its primary mandate of price stability in the \u201cinterest of balanced and sustainable growth,\u201d Kganyago said.<\/p>\n
Inflation slowed to 4.4% in April and the Reserve Bank\u2019s model indicates price growth will be close to the 4.5% midpoint of the target band over the next few years, \u201cwhich is where we want it,\u201d he said.<\/p>\n
\u201cIf you want lower rates, you need lower inflation.\u201d<\/p>\n