Kganyago sees room to react to third virus wave

South Africa’s central bank has room to provide stimulus in the event of a third wave of coronavirus infections, according to Governor Lesetja Kganyago.

“To the extent that there is a third wave that could hit South Africa and hit its economic activity, we have got the scope to respond,” Kganyago said Thursday in an interview with Bloomberg TV. “But that all depends on the data that we would see when the third wave sets in — if it does come in.”

The monetary policy committee last week left the key rate at a record low 3.5% for a third straight meeting and signaled that tightening may start sooner than previously indicated. That’s even as the country is battling a second wave of infections, after detecting a more infectious strain of the virus known as 501.V2.

While the central bank flagged the risk of a third wave of infections, Kganyago said that monetary policy doesn’t respond to disease but rather to the fallout of infections on economic activity. He said he hoped that the country’s vaccination program would have been rolled out by winter, helping to avert another wave of infections.

‘Humanitarian crisis’

While South Africa’s first vaccinations are due to arrive February 1, it and most other African nations have been slow to procure shots, raising fears that the continent’s recovery will lag behind its trading partners.

“You can’t vaccinate one part of the world and hope that the world will be safe,” Kganyago said. “We are facing a humanitarian crisis and it is important that governments roll out the vaccination program as quickly as possible for the benefit of the global community.”

The bank projects that South Africa’s economy will return to growth in 2021 and raised its forecast despite the reintroduction of restrictions to curb the second wave of the pandemic. It sees gross domestic product expanding by 3.6% this year, well above the International Monetary Fund’s growth estimate of 2.8%.

The implied policy rate path of the central bank’s quarterly projection model indicates two increases of 25 basis points in the second and third quarters of 2021.