South African Monetary Tightening Paused

May 19, 2016

The South African Reserve Bank’s repo rate had been raised by a percentage point in three moves between January 2014 and July 2015 and lifted by another 100 basis points in three successive monetary policy committee meetings in November 2015, January 2016 and, most recently, March 17, 2016.  Today’s decision to leave the repo rate unchanged at 7.0% drew one dissent in favor of a 25-basis point increase against a 5-person majority in favor of pausing.  Even at the prior meeting in March, three committee members want to keep the repo rate unchanged.  A statement released today justified the decision as follows:

The Committee remains concerned that inflation expectations remain at uncomfortably high levels. Although core inflation has remained relatively contained in recent months, with a lower peak now expected, it is forecast to accelerate and exceed the upper end of the inflation target range for four quarters in response to exchange rate and wage pressures.The increase in the repo rate at the previous MPC meeting contributed to the improvement in the longer-term inflation forecast, and that move should be seen in conjunction with previous actions in the cycle and the lagged effects of monetary policy. The MPC felt that there is some room to pause in this tightening cycle and accordingly decided to keep the repurchase rate unchanged for now at 7.0 per cent per annum. The MPC remains focused on its inflation mandate, but sensitive to the extent possible to the state of the economy. The MPC will not hesitate to act appropriately 10 should the inflation dynamics require a response, within a flexible inflation targeting framework. Future moves, as before, will continue to be highly data dependent.

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



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