South African Reserve Bank Repo Rate Kept at 6.75%

January 19, 2018

The main South African central bank interest rate was reduced 25 basis points six months ago to its current 6.75% level. This move represented a directional shift. Six prior increases from June 2014 until March 2016 had raised the rate from 5.0% to 7.0%. The result of this week’s first policy review of 2018 was announced late Thursday and resulted by a 5-1 vote to keep the repo rate at 6.75%.

A released statement retained a upside risk bias on inflation but signaled a somewhat improved inflation outlook and modified the forward guidance on future rate changes to a likely two to three increases by late 2019 rather than a likely three moves in that span.

The MPC has taken note of the improved inflation outlook over the near term in particular. Inflation is expected to reach a low point below the midpoint of the target range, but is then expected to resume an upward trajectory and measure 5.5% in the final quarter of next year. This remains above the midpoint of the target range….┬áThe endogenous interest rate path generated by the QPM has changed slightly since the previous meeting. Whereas three increases of 25 basis points by the end of 2019 were indicated previously, the third increase is now a marginal call. Furthermore, the timing of the first increase has been pushed out to later in the period.

Inflation has recently fallen toward the midpoint of the target range, helped by a strengthening rand. Growth remains a challenge and is not projected to top 2.0% in either 2018 or 2019. The dissenting vote at Thursday’s policy review has favored a 25-basis point cut but was overruled by the five other committee members who kept the rate at 6.75%.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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