South Africa’s Reserve Bank kept its benchmark repo rate unchanged at 7 percent on Thursday, saying that while it was still concerned about inflation, the weak economy had provided some room to delay further policy tightening.
“The MPC (monetary policy committee) is aware that some of the favourable factors that contributed to this decision could reverse quickly, and remains ready to react appropriately to any significant change in the inflation outlook,” Governor Lesetja Kganyago told a news conference.
Below are comments from South African Reserve Bank Governor Lesetja Kganyago on Thursday as he announced the central bank’s latest decision on its benchmark repo rate.
At the same time domestic inflation outcomes have surprised marginally on the downside, but an extended breach of the target is still expected.
The latest inflation forecast of the Bank shows a marginal improvement compared with the previous forecast. Nevertheless, inflation is still expected to accelerate further this year and is only expected to return to within the target range of 3-6 percent during the third quarter of 2017.
The domestic economic growth outlook remains extremely challenging, following the contraction in GDP in the first quarter of this year. Although this is anticipated to have been the low point of the cycle, the recovery is expected to be weak.
The rand also responded positively to the improvement in commodity prices, and the unexpectedly large trade surplus recorded in May which followed a small surplus in April. Despite this recent strength, the rand remains vulnerable to possible “risk-off” global scenarios; changes in US monetary policy expectations; and domestic concerns including the possibility of ratings downgrades later in the year.