The central bank's chief economist said South Africa's persistently weak economic growth and difficulties in sticking to spending targets could hinder a return to low inflation, highlighting the need for fiscal policy coherence. He said it shows.
According to Reserve Bank forecasts, policymakers prefer to keep inflation expectations at the midpoint of the target range of 4.5%, a level last seen in 2021 and not expected to settle there until next year. It is expected that
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“To sustain this level, long-term inflation expectations would need to return to the 4.5% level,” Chris Loewald, head of economic research at the South African Reserve Bank, wrote in a chapter in his new book. Ta. Monetary policy response to post-pandemic inflation. “Macroeconomic policy coherence becomes even more important as fiscal weakness and weak underlying growth continue, risking derailing the expected rise in inflation.”
Loewald's comments confirm South Africa's weak public finances and weak economic growth. Africa's most industrialized country has consistently missed its debt targets, with average annual growth of less than 1% over the past decade.
Finance Minister Enoch Godongwana is scheduled to table the national budget on February 21, an opportunity to demonstrate the country's commitment to reining in debt as fiscal demands increase ahead of elections this year.
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The vote is expected to be the closest since the ruling African National Congress came to power in 1994, with polls suggesting it could lose its majority for the first time.
The Reserve Bank has repeatedly highlighted fiscal risks as a threat to its mandate to control inflation, warning that borrowing costs could continue to rise for an extended period.
At its last meeting, the Monetary Policy Committee resolved to maintain the base interest rate at 8.25%, the highest level set in 2009. Governor Lesetja Kganyago said there was no clear evidence that inflation had cooled to the midpoint of the target range of 3-6%.
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“Right now, the priority is to get inflation back on target,” Loewald said. “The price formation process will also benefit from removing long-standing structural impediments, such as product and labor market rigidities, poor educational outcomes, inefficient infrastructure, weak governance, and high policy uncertainty. You will receive it.”
These measures will support job growth, encourage investment and return economic growth to average levels for emerging economies.
Rolling blackouts, clogged ports, and inefficient railways reflecting poor investment and poor management have crippled the economy for years.
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“Successful implementation of reforms requires a gradual but sustained approach, and it is important to have strong and independent institutions,” Loewald said.
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