He also says that inflation remained “sticky” above the 3-6% band, largely due to higher government-set price increases and repeated that analysts and the public should not expect interest rate cuts every month.
Mboweni said here were signs that the worst of the global recession was past, and hoped to see a pick-up in growth later in the year.
“Our own situation is a bit difficult but hopefully the fiscal measures that have been taken will be of assistance, particularly provided with the monetary stimulus that has been provided already,” he told analysts and reporters at a presentation of the bank’s twice-yearly monetary policy review.
The government and its utilities plan to spend R787 billion over the next three years on infrastructure.
The central bank has also cut its repo lending rate by 350 basis points since December, by 100 basis points at each of the last three meetings.
Analysts expect more rate cuts to help boost growth, with the economy seen already in its first recession in 17 years.
The Reserve Bank said in the report indicators suggested the economy, and the manufacturing sector in particular, would remain under pressure “for some time”.
A global downturn, and soft household demand, have knocked domestic growth, with factories suffering record declines in output.
Data this week showed manufacturing production plunged 11.7% year-on-year in March, following the record 15.1% drop the previous month.
This, along with declines in retail sales and mining output, point to another quarter of contraction after a 1.8% decline in the final quarter of last year.
The central bank said inflation was seen back in the target range in the medium term but Mboweni warned that state-set prices continued to keep inflation outside the 3-6% band.
He repeated that a decision in March for the Reserve Bank’s policy meeting to meet more regularly did not mean that interest rate cuts were a forgone conclusion.
“It was important for us to keep pace with the need to analyse and understand what is happening and it does not mean at every meeting there is going to be a reduction in the policy rate.”
The central bank’s policy committee will meet every month, except for July — from once every two months previously. It next meets on May 28 with economists predicting another rate cut.
Mboweni questioned why commercial banks kept the same differential between their prime lending rates and the repo rate despite rates having come down this year.
“It does not have to be at 3.5 percent and it does not have to be the same for every bank … we need a bit of competition,” he said.
Commercial banks have [traditionally] moved in unison on cutting [or increasing] their lending rates in response to central bank cuts. The prime lending rate of all the banks stands at 12 percent.
The Reserve Bank said in the report targeted inflation was forecast to average 6.2% in the third quarter of this year — still above the 3-6% band and higher than previous predictions — and should reach 5.4% by the end of the forecast period at the end of 2010.
Big power price increases and wage demands posed upside risks to the outlook, while the possibility of a deeper and more prolonged global slowdown and more significant moderation in domestic growth exerted a downward bias.
Utility Eskom is likely to push for another electricity price hike of more than 20% this year to help it fund massive infrastructure spending.
Mboweni said councils and other state bodies continued to raise tariffs above the top end of the band, and urged them to temper price hikes.