South Africa’s Reserve Bank raised its benchmark repo rate by 25 basis points to 7.0 percent on Thursday as it tries to tame rising inflation despite slow growth.
Central Bank Governor Lesetja Kganyago said the monetary policy committee remained concerned about the weak growth outlook amid negative business and consumer confidence, but it assessed the risk to the growth outlook to be on the downside.
“Given the upside risks to the inflation forecast and the protracted period of the expected breach, the MPC decided that further tightening was required to complement the previous moves,” Kganyago told a news conference.
The bank targets inflation at between 3 percent and 6 percent.
Two-thirds of the 30 economists and analysts surveyed by Reuters last week said the central bank would leave rates unchanged to support economic growth, while the remaining third called for a 25 basis point rise to 7.0 percent.
But some economists who previously had a ‘hold’ view on rates changed their predictions this week to ‘raise’ after the rand fell sharply as investors fretted about a public row between police and Finance Minister Pravin Gordhan and a possible rating downgrade.
Markets have also been rattled by claims that a wealthy family with close ties to President Jacob Zuma may have been behind his decision to sack the country’s respected finance minister Nhlanhla Nene in December.
But the rand recovered on Thursday after dovish comments from the U.S. Federal Reserve and extended gains against the dollar after the local rate decision, while government bonds remained firmer.
The currency was trading at 15.3350 per dollar as of 1333 GMT, up nearly 2 percent.