Reserve Bank can't afford to reduce interest rate, says economist

The South African Reserve Bank governor Lesetja Kganyago is set to announce the monetary policy committee decision on interests rates on Thursday.

Read: What exactly does the Reserve Bank do - and is it enough? An expert explains

To discuss the announcement, Ray White on the Xolani Gwala Show chats to Econometrix economist Dr Azar Jammine.

I think that primarily inflation numbers have been coming out on a consumer price index level reasonably favourably. But, the concern that one has had in recent times has been a very sharp increase in producer price inflation figures and retail figures have also shown signs of edging up.

Dr Azar Jammine, Economist - Econometrix

He says the fear is that retailers have been withholding passing on price increases for the last year because of weak conditions in the retail sector.

We seem to be getting to a stage where their ability to carry on holding back from passing those cost increases is probably becoming a little bit more constrained. So we could well see inflation accelerating a little more. Sarb cannot afford to reduce the interest rate in the face of some inflation fears.

Dr Azar Jammine, Economist - Econometrix

He says another reason the bank can't afford to reduce the rates is that the rand has taken a knock, making it vulnerable.

If that were to happen, the bank would be aware that it would look stupid as having reduced interest rates now only to be pressured to increase them again later on.

Dr Azar Jammine, Economist - Econometrix

Listen below to the full interview:


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