The widely raised question in business circles in South Africa is whether its central bank would resort to a cut in interest rate to kick start the economy. Undoubtedly, the economy is caught up in a bind of slowdown. While industry is pitching for an easy interest regime to cover the lost ground in economic expansion, the trade unions also have come to the forefront in pressing the government for a rate cut, though for a different reason and that is for saving and creating more jobs. Ostensibly, the demand of the businesses and trade unions converge to the point of economic expansion. Yet, they are seemingly adopting a different plank for more careful and proactive action by the government.
What that militates against the clamor for rate cut by both industry and labor is the principled stand taken by the Reserve Bank Governor, who swears that the central bank will not be pressured by tactics played up in the press or for that matter by any channel used for lobbying. Any decision by the regulator will be guided by the ground level realities. For that positioning, he is apparently looking towards the tough stand taken by the Governor Federal Reserve, US, who is not bowing down to the pressure exerted by the Trump Administration, which is not leaving any stone upturned to drill home the regulator the need for rate cuts for taking the US economy consistently on a four plus percentage growth trajectory.
The South African economy is sluggish after a 3.2% annualized decline in the first quarter. The inflation forecasts is not worrisome with the price level hovering between 3 and 6%, which is below the inflationary expectation of the central bank. Rand with a 4% gain against the US dollar is not doing badly. Economists point out that the global traction for a cut in interest rates is gaining ground for two reasons. One, that will shore up the global trade and capital flows, which of late, have come down. The only continent, which has bucked the trend in FDI is Africa, which as a continent has enhanced the flow of investment in 2018, as compared to the figures a year ago. Yet, Africa accounts for aminuscule of the total global movement of capital.
