“It is disappointing that the Monetary Policy Committee (MPC) majority view is unable to contemplate reducing the repo rate, although the space now clearly exists to act positively.”
This is according to Prof Raymond Parsons, a well-known economist and academic from the North-West University (NWU) Business School.

“The fact that the MPC was divided by a 3-2 vote demonstrates that a strong view does now exist within the South African Reserve Bank (SARB) for a more flexible approach,” he says. 

“Headline inflation subsided to 3,7% in October, and the MPC is now also only expecting a growth rate of 0,5% in 2019, with its growth forecasts for 2020 and 2021 also cut further. With the emergence of a much better inflation outlook, the MPC majority view is therefore unduly cautious in not wanting to ease borrowing costs in the economy.” 

With regard to future risks, Prof Parsons says despite past “shocks” which sapped the rand, recent evidence has shown that inflation has nevertheless still declined, indicating how weak the cost transmission mechanism has become in changed economic circumstances.

“There is also a danger that the credibility of the SARB's anti-inflation mandate may be jeopardised if it is continually perceived as not responding positively to tangible improvements in the inflation outlook. The burden of proof for a central bank cannot be absolute certainty,” he adds.

“With inflation now falling well within the official target range, this visible success should therefore be reflected in lower borrowing costs in the economy. Monetary policy can and should now play a useful, if modest, role in helping to strengthen business and consumer confidence at a critical stage in South Africa's business cycle. 

“It nonetheless remains true that the main burden of promoting job-rich growth in the economy does not ultimately lie with monetary policy, but instead with expediting and implementing the urgent economic reforms to which South Africa is committed.”