In some ways, the choice facing the Reserve Bank seems simple enough — and that would have been supported by data on Tuesday reinforcing how dire the country’s economic position is.
SA’s hard-hit workers, enduring retrenchments and pay cuts, aren’t going to be the source of inflation, which, in May, slowed to 2.1% — the first time it had breached the lower end of the 3% to 6% range since 2005. While many make the mistake of looking at historical data then pronounce on what the Bank will do, forward-looking indicators point to a depressed economy and non-existent demand-side inflationary pressure.
The global outlook would also seem to cement the case for looser policy. Real rates in the US, based on the differential between 10-year bond yields and inflation, are negative, indicating that investors are not convinced by the sporadic surges in risk appetite whenever there’s a positive headline about a Covid-19 vaccine.
It’s true that the central bank should get credit for being proactive so far, having reduced the repo rate by 250bps in the wake of Covid-19, and that much of this is yet to feed into an economy that was in almost complete lockdown until recently, only moving to level 3 at the start of June.
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