South African Reserve Bank

July 19, 2018

While many central banks in emerging economies have been tilting policy in a more restrictive direction, the last two South African interest rate changes were cuts. Reduction of 25 basis points each last March and in July 2017 had followed a period from June 2014 to March 2016 when six increases had raised the SARB repo rate to 7% from 5%. The repo rate is now 6.5% and was left unchanged after this week’s review. But a released statement concludes that the trough of the inflation and its interest rate cycle has likely passed. The inflationary impact and economic drag of a tariff war are noted. “The MPC assesses the risks to the inflation forecast to be on the upside. A number of key risks and uncertainties highlighted in recent meetings persist. Electricity prices continue to pose a further upside risk… The MPC still assesses the stance of monetary policy to be accommodative and appropriate given the current state of the economy. However, the MPC has noted the deteriorating inflation outlook, driven mainly by supply-side factors. The approach of the MPC continues to be one of looking through the first round effects and focusing on the second-round effects. With risks and uncertainties at higher levels, the MPC will continue to be vigilant and will not hesitate to act should there be second-round effects that take us significantly away from the midpoint of the inflation target range” of 3-6%. Higher fuel cost pressures pushed CPI inflation up to 4.6% in June from 4.4% in May.

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



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