Mboweni pours cold water on rate hopes
RESERVE Bank Governor Tito Mboweni has poured cod water on talk that a special meeting of the Banks monetary policy commttee (MPC) is imminent, but did not rule it out entirely.
He told bankers yesterday that he had chosen his words carefully when he hinted early this month that poor economic data might prompt the MPC to convene ahead of its next scheduled meeting in mid-April.
That would suggest the Bank was keen to cut interest rates again most likely by another full percentage point to keep the economy out of a recession.
I said we may, we may, convene a meeting and may still applies, no meeting of the MPC has been called," he said at a conference hosted by Lereko Metier Capital Growth Fund.
The MPC can meet any time they wish if they should meet, we would make sure people are informed about it," he said.
News that the economy shrank 1,8% in the fourth quarter of last year its first contraction in a decade fanned heated speculation that there would be an interim MPC meeting, either this week or next.
But Mboweni said the fall in economic output, which sparked concern that SA might join the global recession, was no reason to panic. The economy expanded 3,1% over the past year, down from an average pace of 5% of the previous four years.
The picture is now well known; 2008 was not one of the best years in terms of economic performance, Mboweni said.
The fourth quarter was in negative territory this is something which should not alarm people, but is nevertheless of some concern," he said.
Inflation was coming down nicely, but not in the waterfall" trajectory predicted, he said.
Rand Merchant Bank fixed-income analyst Bulent Badsha, who was at the presentation, said the governors comments had reduced the likelihood of an interim MPC meeting.
The odds of an early MPC meeting have diminished to about 30-70, although it could still happen, he said. Higher than expected consumer price inflation also counted against an urgent meeting, he said.
Inflation measured by the new consumer price index (CPI) slowed to 8,1% last month from a 9,5% rise in the previous CPI gauge in December.
But figures released after Mboweni spoke showed producer inflation subsided to 9,1% last month from 11% in December well below forecasts. Mboweni also highlighted the large gap between the economys potential rate of output which the Bank says is 4,5% and actual output, which the Treasury sees at 1,2% this year.
If we are growing at 1,2%, there is a sufficient output gap, and that is a good indicator for inflation, he said. Im a bit careful; I will say plus or minus 1,2%.
Nevertheless, the slowdown would affect jobs, Mboweni said. Given current conditions, we expect some slowing in terms of employment creation."
On the bright side, SAs banking sector was looking strong and healthy" despite the worsening global financial crisis, he said.
Total assets in the banking sector rose to R3,17-trillion by the end of last year from R2,66-trillion at the start, while its capital adequacy ratio improved to 13% from 11,8%. But bad loans, or impaired advances, rose to 3,8% of the total from 2,3%.
Article by: www.businessday.co.za