Yet last Friday, the day after the Fed opted to keep rates on hold, the benchmark US S&P 500 equity index fell 1.6 per cent, while eurozone shares tumbled 3 per cent. The selling continued this week, with the S&P 500 dropping a further 1 per cent between Monday and Wednesday, leaving it nearly 2.6 per cent down from where it stood before the Fed decided to leave rates unchanged.
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“We suggest interest rates are going to get back to a neutral position sooner than the market is now forecasting”.
The bank added that its future monetary policy decisions will be depend on the improvements in the inflation outlook in the country.
Although the Monetary Policy Committee, the Bank of England’s rate-setting body, has been keen to stress that it does not take its lead from the Fed, in practical terms they look increasingly likely to move together.
Yet the measure was seen as insufficient, with many analysts and investors arguing that the central bank’s decision will further pressure the lira and threaten a severe policy response-like the emergency rate increases of January 2014, when Mr. Basci was forced to more than double the one-week repo rate to 10%.
The Bank for global Settlements (BIS), the central bankers’ bank, has, for some time now, warned of the dangers and unintended consequences of central banks’ ultra-accommodative policies.
Drew said there were signs of strength in the economy that the Reserve Bank acknowledged but was not yet acting on, which could drive it to want to bring rates closer to a neutral position. “At this sort level, monetary policy is very much in expansionary territory and this is needed to support the economy through a period of low dairy prices, el nino risks, and global financial uncertainty”.
“Growth is expected to remain constrained by global developments and associated uncertainty and volatility, low business and consumer confidence and electricity supply shortages”, Kganyago said. Kganyago stated that South Africa’s domestic economic outlook had deteriorated following the surprise contraction in the second quarter of the year. The central bank lowered its projection for 2015 growth to 3.2 percent from 3.3 percent earlier while keeping the 2016 forecast unchanged at 2.5 percent. It’s gained 1.7 percent against the euro this year as a current- account surplus, government and budget stability helped weather turmoil such as currency devaluations in China and other emerging-market economies. The rate decision came in line with expectations.
Meanwhile, the central bank said that the rand depreciated by 9% against the dollar since the MPC’S last meeting posing an upside risk to the inflation outlook.
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The hold is a welcome respite as concerns abounded that a rate hike would be the contributing factor that would tip South Africa into a technical recession – that is, two quarters of negative economic growth.
