South African Reserve Bank Cuts Interest Rate for First time in Eight Months

March 28, 2018

By a narrow 4-3 vote, the Monetary Policy Committee cut South Africa’s repo rate by 25 basis points to 6.5%. The first move of this easing was made in July 2017, and today’s reduction was the second. A released statement observes reduced in-target price movement and diminished inflation risks since the previous meeting in January, partly as a result of rand appreciation of 4.8% against the dollar and 3.5% on a trade-weighted basis over that interval.

Although the bottom of the inflation cycle has likely been reached, the trajectory of headline inflation is forecast to remain within the target range, with core inflation expected to remain below 5% for most of the forecast period. To the extent that inflation expectations are adaptive, there may be further downward adjustment in these expectations in the coming quarters. As mentioned earlier, the MPC would prefer to see inflation expectations anchored closer to the midpoint of the target band.

The statement also notes improved growth and domestic political developments. Fed tightening remains a risk factor that is being watched. On a tentative basis subject to future data evolution, officials only expect a single 25-basis point rate hike to be necessary before end-2019 instead of two or three. Fifty basis points of additional tightening is projected for 2020.

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



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