The South African Reserve Bank urged the government to address structural impediments such as record power cuts and poor infrastructure that are undermining its work by constraining supply, restraining economic growth and rapidly pushing up prices.
The central bank is “meant to respond to short-term cyclical issues — but if the structural issues don’t change, what happens in this economy is that it behaves all the time like it is over-heating,” Deputy Governor Fundi Tshazibana said in an interview on Saturday.
“It makes the job of the Reserve Bank very difficult because it means that even a small increase in growth looks like demand is exceptionally high when it actually isn’t. It distorts the numbers; it distorts the outcomes of that,” she said on the sidelines of the Kgalema Motlanthe Foundation Inclusive Growth Forum held in the Drakensberg in KwaZulu-Natal.
Tshazibana also urged policymakers to deliver on their commitments to improve performance and shore up public trust. “If you have a plan and you have got all of these gaps, and you never meet your plan — policy is stated, and also the unstated part — your conduct and your behaviour then becomes the policy.”
The central bank has repeatedly called on the government to address the structural issues as they affect how monetary policy presents itself.
Annual inflation has remained above the midpoint of the Reserve Bank’s target range of 3% to 6% — where it prefers to anchor expectations — since May 2021. It accelerated to 5.4% in September because of higher energy and food prices.
The bank earlier this year estimated that power cuts would add 0.5 percentage points to the inflation rate as businesses pass on the costs of backup energy solutions to consumers while shaving 2 percentage points off output growth.
Weaker economic activity has also had implications for tax revenue collections and public finances. South Africa’s Finance Minister Enoch Godongwana will provide more details on both when he lays out his medium-term budget on Wednesday.
Godongwana is also expected to water down proposed spending cuts and ramp up borrowing amid pressure from his cabinet colleagues, who are wary of angering the public ahead of tough elections next year.