South African Reserve Bank Repo Rate Held at 7%

March 30, 2017

A statement released after the year’s second monetary policy review speaks of an improved inflation outlook over the past couple of months. GDP, which grew 0.3% last year, is projected to expand 1.2% this year (just shy of the estimated potential GDP trend of 1.4%), followed by 1.7% in 2018 and 2.0% in 2019. The repo rate had been raised in six moves between January 2014 and March 2016 by two percentage points to 7.0% from 5.0%.

While the statement declares that the tightening cycle is over, officials are reluctant still to ease and voted 5-1 to keep the interest rate at 7.0%. The one dissenter preferred a cut of 25 basis points but was overruled by a majority that ” would like to see a more sustained improvement in the inflation outlook before reducing rates. This assessment may however change if the inflation outlook and the risks to the outlook deteriorate.” The latest reported on-year rise of consumer prices is 6.3% with a core inflation rate of 5.2%, but even long-term inflation expectations continue to hover in the upper part of the target range. Rand appreciation is a primary reason for reduced inflation, but now a domestic political crisis involving President Zuma and Finance Minister Gordhan has the rand depreciating anew. Officials consider inflation risks all in all to be moderately skewed to the upside despite a lack of demand-side pressure on prices.

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



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