JOHANNESBURG - This January, we have seen some colourful monetary policy coming out of central banks. The European Central Bank finally announced its quantitative easing programme to pump money into struggling Eurozone countries. The Swiss National Bank abandoned its exchange rate cap without warning, sending markets into a frenzy. Expect no such drama from the South African Reserve Bank.
With inflation back in the targeted range for the fourth consecutive month in December, there is no urgent need for the Reserve Bank to hike the repo rate.
The monetary policy committee meeting this week will be topical for what the governor Lesetja Kganyago has to say about the economic outlook. Of course, Kganyago will be pleased with the low oil price. However, he is likely to warn about the long-term price trend for oil. The exchange rate continues to be risk factor for inflation.
The monetary policy statement will also deal with the potential impact of Europe’s quantitative easing on South Africa. Already, Kganyago has made remarks to Business Day that suggest the bank is not overly optimistic about the boost South Africa might receive from this. A growing Europe is great for South Africa. About a quarter of our exports go to the EU. Yet it’s too early to tell if the stimulus will work for Europe itself, before we can even consider positive spill-overs on emerging markets like ours.
The Reserve Bank has been on a tightening cycle since January 2014, when it raised the repo rate from 5 percent, which was its lowest rate over the past decade. The repo rate will remain at 5.75 percent on Thursday.
There isn’t much of a case to be made for lower interest rates. The central bank has repeatedly argued that growth in the economy is not constrained by monetary factors. The problem is far more fundamental. The constraints to growth can be found in product and labour markets. Easy money, without increases in productivity and within the bounds of infrastructure constraints, will not do much for the economy.
The trade deficit, sorry trade balance, is coming out on Friday. The December figure might actually show a trade surplus, with exports exceeding imports.
Producer inflation comes out on Thursday. The Reserve Bank will release selected monthly data on Friday. These include figures on how much credit the banking sector has extended to households and companies.
PPC will elect a new board this week. This comes after some turbulent months for the company, which saw former CEO Ketso Gordhan resign abruptly. Last December, the company appointed Darryll Castle as its new CEO.
In one of the largest deals in corporate South Africa, Steinhoff will acquire a 92.34 percent stake in Pepkor Holdings from private equity firm Brait and billionaire Christo Wiese. The R63 billion deal was announced last November. Shareholders will vote on the deal on Monday.