Hanna Barry
1 minute read
5 Jun 2014
6:00 am

SA forecast gloomy-to-miserable – Sarb

Hanna Barry

The South African Reserve Bank (Sarb) says it expects inflation to rise until 2015 on continued currency weakness, exchange-rate induced petrol and food price hikes and weak growth in the domestic economy.

Image courtesy stockxchnge.com

Inflation breached the Sarb’s 3-6% target range in April, reaching 6.1%. It is expected to remain outside the target range until the second quarter of 2015, with risks tilted towards higher inflation, the bank said this week.

“Over the longer term, this necessitates higher interest rates, and therefore a tightening cycle,” the Sarb’s Monetary Policy Committee (MPC) says in its June 2014 Monetary Policy Review. “However, with domestic economic growth weak, and world inflation and interest rates remaining low, monetary policy tightening is likely to be moderate,” it says.

The MPC elected to increase the repurchase rate to 5.5% in January, the first change in 18 months and one that reflected a dramatic change to its inflation forecast.

The repo rate was lowered from 12% at the time of the global financial crisis to 5.5% in late 2010, falling to 5% in mid-2012.

While the rand has strengthened from early-2014 lows, this was prompted by increased global risk appetite (driven by subdued growth and lower interest rates in advanced economies), rather than a positive reassessment of SA’s fundamentals.

Two major domestic risks are an unreliable electricity supply and labour relations, which undermine investor confidence and drive unemployment, at 25% this year.