Reserve Bank keeps 6.75% repo rate
THE SA Reserve Bank unexpectedly left its benchmark repo rate steady at 6.75 percent yesterday – following a 25 basis points (bps) cut in July – mentioning economic uncertainties, but it left the door ajar for further loosening in November.
Markets were expecting a 25bps cut. The bank’s monetary policy committee (MPC) saw a stalemate with three members having preferred an unchanged stance and three members preferring a 25-basis point reduction.
Ultimately, the committee decided to keep the rate unchanged.
This follows the US Federal Reserve keeping its repo rate unchanged on Wednesday and signalling that it expected one more increase by the end of the year.
The central bank’s governor, Lesetja Kganyago, said yesterday that the number of risks to the inflation outlook had increased and the MPC assessed the risks to the inflation outlook to be somewhat on the upside. He said: “The rand remains a key upside risk to the inflation outlook. Furthermore, some of the event risks, particularly those of a political nature, are now more imminent but with no greater degree of clarity regarding the outcome.”
On Wednesday, Statistics SA said consumer price inflation (CPI) in South Africa inched up 4.8 percent year-on-year in August from a two-year low of 4.6 percent recorded in July, but analysts still expected a further rate cut by the central bank.
Inflation July’s rate cut was the first in five years, with the Reserve Bank saying the inflation outlook had improved after being above its target range of 6 percent for most of 2016.
Sizwe Nxedlana, the chief economist at FNB, said yesterday that while the central bank opted to keep rates unchanged at its latest MPC meeting, the inflation trajectory continued to fall in response to low oil prices, a relatively strong rand, falling food price inflation and weak domestic demand.
The announcement of the unchanged repo rate supported the faltering rand, with the local unit strengthening against the US dollar from R13.39 it was bid at prior to the announcement to R13.27 after the decision was made public.
The central bank said its forecast for headline inflation was unchanged at an annual average of 5.3 percent this year and revised up by 0.1 percentage point to 5 percent and 5.3 percent in 2018 and 2019.
Kganyago was adamant that these forecasts did not incorporate the most recent inflation outcome.
John Ashbourne, an Africa economist at Capital Economics, said yesterday’s meeting was a reminder that the Reserve Bank was a conservative and slow-moving institution.