South African Reserve Bank Meeting

January 24, 2017

The repo rate was left unchanged at 7.0% by unanimous vote and as expected. Such had previously raised in six moves from January 2014 through March 2016 from a base of 5.0%.

A statement released after the latest meeting is guarded in tone, nonetheless. Projected inflation in the short term has been revised somewhat higher and is expected to take two additional quarters than thought before before falling to its target. The revision stems from higher oil and food prices. These are shocks beyond the immediate control of monetary policy, and policymakers are not in the habit of responding to such factors unless they spawn second-order price pressure. Yet, risks to the inflation outlook are tilted moderately to the upside, and officials are in a trust-but-verify mood for now.

The MPC remains focused on the medium- to longer-term inflation outlook, but the deterioration of the shorter-term outlook requires increased vigilance. Furthermore, the MPC remains concerned that the longer-term inflation trajectory continues to be uncomfortably close to the upper end of the target range. The Committee retains the view that we may be near the end of the hiking cycle. However, should second round effects emerge that undermine the longer-term inflation outlook, there may be a reassessment of this view.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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