Pretoria - The era of abundant portfolio flows to emerging markets appears to be over with the volume of flows likely to be lower, Reserve Bank Governor Gill Marcus said on Tuesday.
“… the volume of flows is likely to be lower and more discriminating than was the case in recent years. This applies more strongly to countries such as South Africa where sustainability of current account deficits are perceived to be an issue,” said Marcus.
Speaking at the SA Institute of Chartered Accountants Business Breakfast in Johannesburg, Marcus said that emerging markets remain an important driver of global growth but that the outlook is fragile.
On speculation, on whether the country is heading for a recession Marcus said this would not be a likely outcome.
“Given that the platinum strike covered more than two months of the first quarter, it is unlikely that a further contraction of that order of magnitude will occur in the second quarter. We do not believe that a recession is the most likely outcome.”
She said it was important for government, business and labour to rebuild confidence and trust in order to change the negative trajectory that the economy is on.
This as the strike in the platinum belt enters its fifth month.
Marcus said the costs to both workers and mining companies continue to escalate.
“While the strike has already been felt in the economic growth outcome it has not as yet been fully reflected in the export data,” said the governor.
Commenting on monetary policy, Marcus said the interest rate increase seen at the Monetary Policy Committee (MPC) meeting in January was not a “one-off move”.
“It is part of a necessary cycle to deal with the inflation risks and to normalise interest rates in the economy,” she said, adding that the speed and extent of tightening will be sensitive to domestic growth consideration.
This as the bank left the repo rate unchanged at 5.5% at its May meeting, after hiking the rate at its January meeting.
“We are often asked if a 25 basis point adjustment is a possibility. Yes it is. When the repo rate was in double digits a 25 basis point change would make little impact. Can 25 basis points make an impact? Perhaps not on its own, but seen in the context of a longer cycle it could be part of a cumulative increase,” she said. – SAnews.gov.za
