Reserve Bank maintains interest rates at 7%, raises growth forecast
Pretoria – The South African Reserve Bank on Thursday, left the repo rate at 7 percent for a third consecutive time this year, raising its forecast for economic growth to 0.4 percent.
The prime lending rate, the figure charged by banks to customers, will remain at 10.5%.
Addressing the media, Reserve Bank governor Lesetja Kganyago noted food inflation was almost 12 percent because of the drought, and would peak in the fourth quarter. He said the economy was improving and revised SA’s gross domestic product to 0.4 percent this year, growing to 1.2 percent in 2017 and then 1.6 percent in 2018.
The Bank has to weigh high inflation against sluggish economic growth — repeatedly flagged as one of the key concerns of international rating agencies as they consider whether to downgrade SA to junk status later this year.
The bank took the same decision at the previous meeting of the Monetary Policy Committee (MPC) in July.
Consumer inflation, although high, has come within the Bank’s 3%-6% target band in recent months. Stats SA said this week the consumer price index (CPI) rose 5.9% year on year in August.
The Bank, which looks at inflation expectations 12 to 18 months ahead in determining monetary policy, lowered its outlook for inflation for 2016 on Thursday, citing improvements in administered prices including fuel and electricity, and in assumptions about the rand exchange rate.
It now expects CPI inflation to average 6.4% in 2016, governor Lesetja Kganyago said on Thursday, from an earlier forecast of 6.6%, while the 2017 forecast was revised to 5.8% from 6%, and 2018 was unchanged at 5.5%. The Bank now sees inflation peaking at 6.7% in the fourth quarter of this year.
Thursday’s decision left the repo rate unchanged at 7%. The Bank has raised rates by 75 basis points since the start of the year, and by 200 basis points since January 2014. The last rate increase was 25 basis points in March 2016, and followed a 50-point hike in January.
In response to the decision to keep rates steady, the Rand was trading at 13.4899 against the US Dollar.