South Africa’s central bank expects a hike in value added tax (VAT) to lift inflation by around 0.6 percentage points over the coming year though it doesn’t expect to raise interest rates in response, one of its top policymakers said on Tuesday.
With inflation targeting, you try and look through exogenous shocks, particularly temporary ones and this is a one off,” Brian Kahn told Reuters on the sidelines of investor meetings in London.
“There may be a few second round effects, it may affect wage increases in the following years, so we expect a moderate, very small increase in the following year as a result of that.”
“But it is something that we would not react to by raising rates and we would certainly try and look through it.”
Reporting by Karin Strohecker, editing by Marc Jones