South African Reserve Bank

September 23, 2015

The Monetary Policy Committee voted unanimously to leave the 6.0% repo rate unchanged but acknowledged that inflation risks are skewed to the upside because of past rand depreciation and the potential for the exchange rate to slide further.  “The rand was negatively impacted by developments in China, continued speculation regarding the timing of US policy “take-off”, and the weaker-than-expected GDP growth outcome.”  While inflation is currently within the Bank’s 3-6% target range, a breach of the ceiling is projected in the first and final quarters of next year.  Even by the final quarter of 2017, officials expect inflation to be only a quarter percentage point under the ceiling.  From a 30-year low of 5.0% from July 2012 to end-2013, the MPC raised the repo rate by 50 basis points in January 2014, 25 bps in July 2014 and, most recently, by 25 bps (via a 4-2 vote) at the previous policy meeting on July 23, 2015.  The problem with tightening monetary  policy further now is that while inflation is rising, economic growth unexpectedly contracted 1.3% at an annualized rate in the second quarter.  Officials are attempting to strike a balance between inflation containment and growth promotion.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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