Reserve Bank keeps repo rate unchanged at 6.75%

South African Reserve Bank Governor Lesetja Kganyago. Picture: ANA

South African Reserve Bank Governor Lesetja Kganyago. Picture: ANA

The Reserve Bank governor says there are numerous pressures on inflation, but it will still decline slowly for the next three years, as it has since 2017.

The South African Reserve Bank’s (SARB) monetary policy committee (MPC) on Thursday kept the repurchase rate (repo rate) unchanged at 6.75 percent in a contested decision.

But the MPC revised down the country’s GDP growth, saying it was now expected to average 1.0 percent down from 1.3 percent forecast in March.

The announcement was made by the central bank’s governor Lesetja Kganyago at a media briefing in Pretoria on Thursday afternoon.

Kganyago said three members preferred to keep rates on hold and two members preferred a cut of 25 basis points.

South Africa’s central bank last raised the repo rate by 25 basis points in November to stem inflation pressures.

Kganyago said headline inflation was expected to average 4.5 percent in 2019, down from 4.8 percent, increasing to 5.1 percent in 2020 and moderating to 4.6 percent in 2021.

He said the main drivers of the forecast were a lower starting point for food and services inflation, and the revised oil price assumptions. Food price inflation is now expected to average 3.7 percent in 2019, down from 4.1 percent.

“The near-term growth outlook is limited by the larger than expected slowdown in the first quarter, weak business and consumer confidence as well as growing pressure on household disposable income,” Kganyago said.

“The committee assesses the stance of monetary policy to be broadly accommodative over the forecast period. Any future policy adjustments will continue to be data dependent.”

Kganyago said weak business confidence, possible electricity supply constraints and high debt levels in certain state-owned enterprises would continue to limit investment prospects.

Kganyago predicted economic growth of 1% over the coming period, with the risk to the growth forecast being on the downside. He said load shedding and further risks of it, high levels of public debt, household indebtedness, a strike at Sibanye’s gold mines, Brexit and numerous other threats had had a depressing effect on economic prospects.

He said South Africa’s economic problems were of more of a structural nature than a monetary police one.

He further announced that Christopher Loewald, the bank’s head of policy development and research, was joining the MPC for the next three years.

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