South Africa’s central bank kept its benchmark repo rate steady at 7 percent on Thursday, as expected, citing concerns about the inflation outlook, even though it cut its growth forecasts.
Governor Lesetja Kganyago said consumer inflation is now within the bank’s target of between 3 percent and 6 percent, but the longer term Consumer Price Index trajectory was “uncomfortably close to the upper end” of the range.
The rand firmed slightly in response to the rate decision, while government bonds weakened..
Kganyago also said the outlook of the rand currency, in light of the domestic political uncertainty and credit ratings downgrades, remained a key risk to the inflation outlook.
“A reduction in rates would be possible should inflation continue to surprise on the downside and the forecast over the policy horizon be sustainably within the target range,” Kganyago told a media conference in Pretoria.
“However, in the current environment of high levels of uncertainty, the risks to the outlook could easily deteriorate, and derail the current favourable assessment.”
S&P Global Ratings and Fitch downgraded South Africa to “junk” in April after a cabinet reshuffle at the end of March in which Pravin Gordhan, widely respected by markets, was fired as finance minister.
Moody’s put South Africa on review for a downgrade.
(Additional reporting by Mfuneko Toyana and TJ Strydom; Writing by Olivia Kumwenda-Mtambo; Editing by James Macharia)