Pretoria - South Africa’s growth prospects have weakened in the current global and domestic environment, Reserve Bank Governor Gill Marcus said on Friday.
“South African economic growth prospects have weakened in the face of global and domestic constraints,” said Marcus at the Reserve Bank’s 93rd annual ordinary general meeting of shareholders.
The central bank forecasts growth of 2% in 2013, rising to 3.3% in 2014. Downside risks to the forecast are electricity supply constraints.
Inflation is seen as moving up and breaching the bank’s target range of 3% to 6%.
“At the same, driven mainly by a depreciating currency and rising wage and salary costs, the forecast inflation path has moved up, and a temporary breach of the target range is expected in the third quarter of this year, despite an absence of strong demand pressures,” said Marcus.
Although the bank’s forecast suggests that inflation will remain within the target range for now, thereafter it was “uncomfortably close to the top of the target range and the risks to this forecast are seen to be on the upside”.
“Against the backdrop of a volatile currency responding to domestic and global developments, we can expect a challenging year ahead for monetary policy,” Marcus told shareholders at the meeting.
The Consumer Price Index (CPI) in June came in at 5.5%, compared to 5.6% May, Statistics South Africa announced earlier this week.
Turning to the management of the country’s official gold and foreign exchange reserves, the governor said there was a need to build up foreign exchange reserves.
“For some time there has been a need to build up the country’s holdings of foreign exchange reserves, which were and still are low in comparison to IMF estimates of reserve adequacy and our emerging market economy peers,” she said.
The need to accumulate these reserves was driven by the imperative to reduce the country’s vulnerability to “sudden” large outflows of capital, something the South African economy was prone to.
Good progress has been made in the past 10 years, with gross and gold and foreign exchange reserves increasing from US $8 billion in June 2003 to the current levels of US $47 billion.
The financial statements presented showed that the bank recorded a loss for the third consecutive year, with the bank showing a loss of R1.5 billion for the 2012/13 financial year, compared to R491 million in the previous financial year.
It was important, said Marcus, to elaborate on the nature of the losses as they arose from the unique nature of a central bank. Central banks pursued national welfare and not profits, she said.
The accumulation and holding of foreign exchange reserves was the major source of losses. The other contributing factor to the increased losses was the introduction of new banknotes - the Mandela notes - which were introduced in November 2012.
“The introduction of new currency series evolves high initial fixed costs for a number of years as the stocks are built up,” said Marcus.
The meeting also saw the appointment of three non-executive directors to the bank’s board, as well as the appointment of PricewaterhouseCoopers and SizweNtsalubaGobodo as the bank’s independent external auditors. – SAnews.gov.za
