S.Africa central bank says in rate hiking cycle but sensitive to economy - CNBC Africa

S.Africa central bank says in rate hiking cycle but sensitive to economy

Financial

by Reuters 0

South African Reserve Bank govonor, Gill Marcus. PHOTO: University of Johannesburg

This would be sensitive to the fragility of the economy, the central bank said on Tuesday.

In its June monetary policy review, the Reserve Bank said inflation was projected to be above target for an extended period of time, with risks tilted to the upside.

"Over the long term, this necessitates higher interest rates, and therefore a tightening cycle," it said.

"However, with domestic economic growth weak, and world inflation and interest rates remaining low, monetary policy tightening is likely to be moderate."

The central bank has kept interest rates unchanged at its last two policy meetings to take pressure off the ailing economy, after a surprise 50 basis point increase in January which left the key repo rate at 5.5 per cent.

The bank also said on Tuesday there were risks of GDP growth falling short of even current lowered expectations, with protracted labour disruptions, commodity prices and electricity shortages posing "clear dangers."

It said a weaker rand exchange rate remained a significant source of upside risk inflation, and would remain vulnerable to changing global expectations for U.S. monetary policy and appetite for risk.

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