South African Reserve Bank Tightens

November 22, 2018

The South African Reserve Bank surprised markets with an unexpected 25-basisĀ  point increase of the repo rate to 6.75% after their sixth and final planned policy review of 2018. This was the first rate change since a cut of 25 basis points last March. Officials want to head of rising inflation expectations amid inflation stubbornly holding in the upper half of the 3-6% target range. The committee was divided evenly between three members seeking a hike and three others preferring no rate change. Regarding inflation, the statement observes that

The MPC noted the rising inflation trajectory which, while remaining within the target range, continues to deviate from the mid-point of the target range. The MPC continues to assess the risks to the longer-term inflation outlook to be on the upside. These risks include tighter global financial conditions, a weaker exchange rate, higher wage growth, international oil prices and rising electricity and water tariffs. However, demand pressures are still not assessed to pose a significant risk to the inflation outlook.

Central bank officials still consider their policy stance to be accommodative even after today’s unexpected interest rate increase.

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



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