S.Africa’s repo rate remains unchanged - CNBC Africa

S.Africa’s repo rate remains unchanged

Financial

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SARB governor, Lesetja Kganyago has kept the country’s repurchase rate unchanged. PHOTO: dispatchlive.co.za

South African Reserve Bank (SARB) governor, Lesetja Kganyago has kept the country’s repurchase (repo) rate unchanged.

“In its previous statement the committee noted that the more favourable inflation path allowed for some room to pause in the process of domestic monetary policy normalisation. The deterioration in the outlook suggests that this scope has narrowed,” he said.

“However, given the uncertainties related to US policy normalisation and the weak state of the domestic economy, the Monetary Policy Committee (MPC) has unanimously decided to keep the repurchase rate unchanged for now.”

(READ MORE: S.Africa’s central bank maintains repo rate)

He added that the timing of future interest rate increases will be dependent, as before, on a range of domestic and external factors.

“The MPC will remain vigilant and will not hesitate to act in order to maintain the integrity of the inflation targeting framework.”

Kganyago did however acknowledge that the growth outlook remains constrained by electricity supply concerns and low business confidence.

He also stated that the risks to the growth forecast are assessed to be moderately on the downside and that demand pressures on inflation remain muted, reinforced by a moderately tighter fiscal policy stance.

“Wage and salary increases in excess of inflation and productivity growth also pose an upside risk to inflation,” Kganyago added.

“The committee assesses the risk to the inflation outlook to be on the upside, with the possibility of further electricity tariff increases accentuating this risk.”

According to the MPC, the rand exchange rate continues to be the main upside risk to the inflation outlook.

(READ MORE: S.Africa C.bank’s Kganyago - Monetary policy still supportive of economy)

“[It] remains highly vulnerable to the timing and pace of US monetary policy normalisation. The extent to which US rate increases are priced into the exchange rate remains uncertain,” said Kganyago.

“While the weaker euro has provided some offset, and therefore a more moderate depreciation of the trade-weighted exchange rate, this effect is partial. Furthermore, the rand will also remain sensitive to domestic developments, including the slow pace of contraction in the deficit on the current account of the balance of payments.”

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