South Africa CB Holds Rate Unchanged, Revises Down Growth Forecasts

South Africa’s central bank left its key interest rate unchanged on Thursday for seventh successive policy session, citing high levels of uncertainty and risks to the outlook, as it lowered the growth forecasts for this year and next.

The Monetary Policy Committee of the South African Reserve Bank kept the repurchase rate unchanged at 7 percent, in line with economists’ expectations.

The previous change in the rate was a quarter-point hike in March last year.

Five members supported the latest decision, while one member sought a 25 basis point cut.

“The MPC remains of the view that the current level of the repo rate is appropriate for now and that we are likely at the end of the tightening cycle,” SARB Governor Lesetja Kganyago said in a statement.

“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.”

The central bank revised down its growth forecasts for this year and next, both by 0.2 percentage points each, to 1 percent and 1.5 percent, respectively. The projection for 2019 was lowered by 0.3 basis points to 1.7 percent.

The bank attributed the reduction in the outlook partly to the expected impact of the sovereign credit ratings downgrade on domestic private sector gross fixed capital formation.

The downgrade is also likely to weigh on public sector investment through higher funding costs and more difficult access to funding, the SARB added.

The bank trimmed its 2017 inflation forecast to 5.7 percent from 5.9 percent and the outlook for next year was lowered by 0.1 percentage point to 5.3 percent. The projection for 2019 was unchanged at 5.5 percent.

The improvement is driven by downward revisions to international oil price and
domestic electricity tariff assumptions, Kganyago said.

That said, the bank expects these downward revision to be partly offset by a less appreciated exchange rate assumption, and a slower decline in food price inflation.

Nominal salary and wage increases have continued to show signs of moderation, but are still at levels that contribute to the persistence of inflation at higher levels, the bank said.

Food price inflation projections for this year and next were raised to 7.7 percent and 5.4 percent, respectively, from 7.4 percent and 5.2 percent. The outlook for 2019 was unchanged at 5.5 percent.

Core inflation projections for this year and next were modestly cut to 5 percent and 5.1 percent and the forecast for 2019 was unchanged at 5.3 percent.

The MPC assesses the risks to the inflation outlook to be more or less balanced and those to the growth outlook to be on the downside, the bank said.

by RTT Staff Writer

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