South Africa’s central bank suggests that the recent end to regular power outages could lead to improved economic growth and a reduction in inflation, Cape {town} Etc reports.
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The nation has seen 155 consecutive days of stable electricity supply, ending a period of severe load shedding that had stifled economic progress and driven up business costs.
‘There’s a growth side and there’s an inflation side; there may be a double whammy, there may be a good story here,’ Deputy Governor Rashad Cassim said during a press briefing in Johannesburg on Thursday.
Cassim expressed hope that the improved power situation could lead to a revision of economic forecasts.
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‘Let’s hope that for the first time, given the fact that load shedding, or the lack of it post the election, that there will be an upward revision of the forecast and that will be very good for the economy,’ he added.
The country’s energy crisis, along with deteriorating infrastructure due to years of poor governance, has hindered economic growth. South Africa’s GDP has grown by less than 1% annually over the past decade, insufficient to address the high unemployment rate of 33.5%.
Governor Lesetja Kganyago remarked, ‘If we deal with these structural constraints, we can lift our GDP growth potential to 3.5%, which would basically mean that we can continue to accelerate our growth at least until we hit that 3.5%.’ He added, ‘By solving those structural constraints, you are providing the space for monetary policy to provide the support for the economy.’
The central bank currently forecasts a 1.1% GDP growth for 2024, increasing to 1.5% in 2025. Inflation is expected to slow below the 4.5% midpoint of the bank’s target range by the fourth quarter, down from 4.6% in July. The gap between the bank’s policy rate and the inflation rate is the widest it has been in 18 years.
A further slowdown in inflation could pave the way for interest rate cuts, which would stimulate economic growth. Kganyago has indicated that the monetary policy committee will consider lowering rates only when inflation sustainably approaches 4.5%.
Forward rate agreements predict about 62 basis points of rate cuts by year-end from the current 8.25% level. The next interest rate decision is scheduled for 19 September.
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