“The committee remains of the view that interest rates will have to normalise over time. However, given the lower trajectory of headline inflation and the continued weak state of the economy, the MPC has unanimously decided to keep the repurchase rate unchanged at 5.75 per cent per annum,” he said.
“The timing of future interest rate increases will be dependent on a range of factors, including the evolution of inflation expectations, the speed of normalisation of monetary policy in the US and the state of the domestic economy.”
(READ MORE: S.Africa’s repo rate remains unchanged)
Kganyago also stated the Monetary Policy Committee (MPC) sees the overall risk to the headline inflation forecast to be more or less balanced.
“Given the elevated level of core inflation, and the fact that headline inflation is expected to increase later in the forecast period as the first round effect of the oil price decline dissipates, the committee remains vigilant and will continue to monitor developments closely,” he added.
The governor emphasised the fact that the domestic growth outlook remains challenging but that some recovery is expected, while demand remains subdued.
“The coming quarters are expected to see an improved performance in the mining and manufacturing sectors, but the outlook is inhibited by domestic structural constraints, as well as by a weak global economy and the continued declining trend in non-oil commodity prices,” Kganyago said.
“The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas measured 5.9 per cent in both September and October, having measured 6.4 per cent in August. Downward pressure on inflation in October came from continued moderation in food and petrol prices.”
However, the bank’s forecast of headline inflation has improved since the previous meeting of the MPC, mainly due to the impact of declining international oil prices.
“Having reached a peak of 6.5 per cent in the second quarter of this year, inflation is now expected to average 5.9 per cent in the final quarter of 2014, and average 6.1 per cent for the year, compared with 6.2 per cent previously,” Kganyago indicated.
“The downward trend is expected to continue into next year, with inflation forecast to reach a low of 5.1 per cent in the second quarter, and to average 5.3 per cent for the year, compared with 5.7 per cent previously.”
He added that the forecast for 2016 has been revised down from 5.8 per cent to 5.5 per cent, and is expected to measure 5.4 per cent in the final quarter of the year.
Kganyago stated that the outlook for emerging markets is mixed, with emerging Asian economies expected to benefit most from the positive spill overs from the US recovery.
“This is expected to offset in part the adverse impact of the slowdown in China, where growth is expected to be lower than in the past few years, as the economy rebalances away from investment towards consumption,” he said.
“This moderation is expected to continue to impact negatively on commodity prices. The Indian economy is showing signs of sustained recovery, while the other BRICS partners, Russia and Brazil, face significant growth headwinds.”
He also said that global inflation is expected to moderate in the face of benign food price inflation and falling international oil and other commodity prices.