South African Reserve Bank Enacts a Third Straight Rate Hike

March 17, 2016

SARB’s policy interest rate was lifted 25 basis points to 7.0%.  At the prior two meetings of the Monetary Policy Committee, such had bee increased 25 basis points in November and 50 bps in January.  There had earlier also been increases of 50 bps in January 2014, 25 bps in July 2014 and July 2015.   The latest rate hike was engineered in spite of a deteriorating South African economic outlook and a slight improvement in expected inflation, which nonetheless remains excessive in large part because of the rand’s steep drop last year.  In a newly released statement, officials concede that “the MPC remains sensitive to the possible negative effects of policy tightening on cyclical growth, but will remain focused on its mandate of maintaining price stability.  Given the upside risks to the inflation forecast and the protracted period of the expected breach, the MPC decided that further tightening was required to complement the previous moves.”  The newly predicted path of inflation is as follows:  “Inflation is expected to peak at 7.3 per cent in the fourth quarter of 2016, down from 7.8 per cent previously, and to return to within the target range, to 5.5 per cent, during the fourth quarter of 2017. Inflation is then expected to remain within the target range for the rest of the forecast period.”  Recent indications of expected inflation have been mixed, with analysts tending to be more worried about the upside potential than businessmen and labor market officials.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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