South Africa risks slipping into a long and painful economic recession if the central bank is forced to abandon its policy of reducing inflation and protecting the currency, Reserve Bank Gov. Lesetja Kganyago said on Sunday.
In an editorial article published in the Sunday Times newspaper, Kganyago said the recent recommendation by an anti-graft agency for the central bank to focus on growth misunderstood the dangers of persistently high consumer prices.
“The past half-century is littered with examples of painful recessions caused by the need to reduce runaway inflation created by authorities trying to create growth by printing money,” Kganyago said.
Credit downgrades by two of the top three ratings agencies, based on the economic and political turmoil, have dented business and consumer confidence in South Africa, which has just suffered two quarters of economic contraction.
Public Protector Busisiwe Mkhwebane set-off a political row this month when she called for an overhaul of the bank’s mandate — to focus on growth rather than inflation and the currency — rattling investors and hitting the rand hard.
The bank has since filed a court challenge to quash the recommendation. On Friday, Finance Minister Malusi Gigaba echoed the Parliament’s and the ruling party’s denouncement of the recommendation, accusing the agency of overstepping the mark.
The bank aims to keep price growth below 6 percent, currently at 5.4 percent, and since early 2014 has lifted benchmark interest rates by 200-basis points in a bid to cool inflation and encourage long-term investment.
“Monetary policy is always about supporting economic growth in a sustainable way. Experience shows economies grow stronger and more consistently at lower inflation rates,” Kganyago said.
South African Airways
South African Airways (SAA) has been provided with state funds to help it repay loans of about 2.3 billion rand ($176 million) to Standard Chartered, the government said on Saturday.
The airline faced around 9 billion rand of debt maturing at the end of June involving six or seven lenders, according to the Treasury.
On Thursday, the Treasury told lawmakers it was in discussions with lenders to rollover the amount owed to them.
In a statement issued on behalf of the Treasury, the government said the funds provided to SAA had been sourced from the National Revenue Fund (NRF), which under law allows any minister to authorize the use of funds for expenditure of an exceptional nature.
“A default by the airline would have triggered a call on the guarantee, leading to an outflow from the NRF and possibly resulting in elevated perceptions of risk related to the rest of SAA’s guaranteed debt, the statement said.
SAA already relies on government guarantees of about 20 billion rand to keep it solvent.
Finance Minister Malusi Gigaba’s office said Standard Charted had requested immediate payment of the money owed but that the remaining lenders had indicated they were open to deferring the debt.
“Drawing on the NRF was a tough decision versus the worse one of default. It was taken to reassure lenders that state firms and more importantly government will not default,” ministry spokesman Mayihlome Tshwete said.
Source: Arab News
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