A Tightly Contested South African Interest Rate Decision Ends Up Raising the Repo Rate to 6.75% from 6.25%

January 28, 2016

The six-person monetary policy committee at the South African Reserve Bank produced a 3-2-1 vote.  Two dissenters preferred to hike the interest rate by only 25 basis points, and another objection was cast in favor of leaving the repo rate unchanged.  Officials are mandated to secure price stability but are sensitive to deteriorating growth prospects.  A released statement revised projected GDP growth for 2016 to 0.9% from 1.5% and said risks to that estimate lie to the downside.  At the same time inflation expectations are creeping higher.  Food price inflation is moving into double digits, and the rand has dived over 10% since a 25-basis point repo rate hike in November.  There were earlier increases of 25 basis points last July, 25 bps in July 2014 and 50 bps in January 2014.  For 18 months from July 2012 to January 2014, the repo rate had been at a 30-year low of 5.0%.  The statement calls the policy stance still accommodative, since the repo rate is still well below inflation and addresses those protesting rate increases:  “The MPC is of the view that the growth constraints facing the economy are primarily of a structural nature and cannot be solved solely by monetary policy. Nevertheless, the MPC remains sensitive, to the extent possible, to the possible negative impact of monetary policy actions on cyclical growth.”

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



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