Inflation is not a problem right now: SARB governor
Inflation is not a problem for the South African Reserve Bank (SARB) for the next 12 to 18 months, says governor Lesetja Kganyago.
“Inflation is not our worry,” Kganyago told the Cape Town Press Club on Wednesday (17 August), when asked about possible quantitative easing. “Our interest rates are not zero. Our inflation is not zero. Quantitative easing is not what we will embark on,” he said.
The governor said that quantitative easing is only an option when inflation is so far below target, it threatens to be close to zero and you cut interest rates so low that any increase or decrease makes no difference.
Some have criticised the SARB for not implementing quantitative easing to help an economy which was already in recession before the impact of Covid-19 – and could develop into a deep structural economic depression, Business Unity SA has warned.
Kganyago was mum about possible further rate cuts, with the country having seen a cut of 25 basis points in July, taking total cuts to 300 points in 2020. He said monetary policy is not about cutting rates, but protecting the value of a currency by containing inflation.
“Monetary policy actions that we have taken are meant to take the economy back towards [its] potential, because the economy experienced a shock that deviated it from [its potential],” Kganyago said. “Think of it as if you’re driving on the highway and you got a scare, an animal crossed, and you slowed down.”
On National Treasury’s R200 billion Loan Guarantee Scheme which business can apply to for business restart loans, Kganyago said the National Treasury is the only one with “skin in the game”. “If these loans go wrong, it is the Treasury’s money. Not everybody else,” Kganyago said.
“This is taxpayers’ funds… it is important that the design of the scheme and its features continue to protect taxpayers.”
The scheme provides a lending hand to small businesses with a turnover of less than R300 million in the form of government-guaranteed loans to cover their operational expenses such as salaries, rent and utilities.
Finance minister, Tito Mboweni has said the Loan Guarantee Scheme has already provided over R11 billion to qualifying businesses.
According to Kganyago, only about 13% of this money has been claimed, because the scheme is new and businesses are gradually reopening after the country moved to level 2 lockdown.
“If you were a restaurant owner, and this scheme was available, but the economy was still under lockdown, even if you were creditworthy, and you could access the facility, what would you do with it?” Kganyago said.
“So, with the economy opening up, we should actually see the take up of this facility, but also credit flowing,” he said.
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