JOHANNESBURG, Aug. 25 (Reuters) – South Africa’s central bank deputy governor Kuben Naidoo on Wednesday said he believed the bank could normalize interest rates rather slowly given inflation should stay well-bred.

The South African Reserve Bank cut its main policy rate by 300 basis points last year to a record low of 3.5% to help cushion the impact of the coronavirus crisis.

But he left it hanging in his last six monetary policy meetings, diverging from some other emerging market central banks, which have started to increase borrowing costs due to a pickup in inflation.

“Our baseline scenario is that inflation should behave on its own over the next 12 months,” Naidoo said during a webinar hosted by asset manager Ninety One.

“Given the current outlook for inflation, I think we can be quite slow and gradual as rates normalize.”

Naidoo said the repo rate would likely increase to around 6% -7%, which Monetary Policy Committee members consider a rough level for a “neutral rate” as the economy returns to a level of. reasonable growth.

“We believe we can keep interest rates accommodating for at least a year or two,” he added.

Among the potential risks the bank will watch out for, Naidoo cited electricity tariffs, significant rand weakness, much faster increases in US interest rates and domestic fiscal pressures.

He said the slowdown during the pandemic had been less severe than expected due to factors such as a strong fiscal and monetary response, the fact that low-income workers making up a relatively small share of consumption suffered disproportionately. and a commodity boom. prices.

“But it’s still an absolutely massive downturn,… I think it will take many years for the economy to fully recover,” Naidoo said.

A rebase of gross domestic product estimates by the country’s statistics agency released on Wednesday put last year’s economic contraction at 6.4%.

Reporting by Alexander Winning; Editing by Steve Orlofsky

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