End to rate hikes may be in sight
Inflation outlook a worry
SOUTH Africa might be near the end of the rate-hiking cycle, but should second-round effects emerge that undermined the long-term inflation outlook, this view might be reassessed, the Reserve Bank cautioned yesterday, as it announced it had kept the repo rate unchanged at 7 percent.
Separately, ratings agency S&P Global Ratings said yesterday rising political tensions in South Africa amid infighting in the ANC could derail government efforts to improve policy implementation and that the country had little room to boost spending.
Announcing the rates decision of the monetary committee (MPC), Reserve Bank governor Lesetja Kganyago said the MPC remained concerned that the longer-term inflation trajectory continued to be uncomfortably close to the upper-end of the target range.
The meeting was a day shorter than normal and the rate announcement was on a Tuesday instead of a Thursday, because of prior engagements of some members.
Kganyago also said the Reserve Bank’s inflation forecast had deteriorated since its last meeting. Headline inflation is now expected to only return within the target range (3 percent to 6 percent) during the final quarter of 2017, and to average 6.2 percent for the year, compared with 5.8 percent in the previous forecast.
The forecast for 2018 is more or less unchanged.
Kgangyago said: “The peak of the forecast remains at 6.6 percent, which was recorded in the final quarter of 2016, and this level is now expected to persist in the first quarter of 2017.”
By contrast, the forecast for core inflation is unchanged, averaging 5.5 percent in 2017 and 5.2 percent in 2016.
He said this inflation expectation deterioration was mainly due to changed assumptions regarding international oil prices and domestic fuel prices, which more than offset the more favourable exchange assumption.
Adding to inflation woes, Fanie Brink, an independent agricultural economist, said yesterday that drivers could expect fuel prices to rise in February.
He said this was according to the latest information by the Department of Energy.
According to this information, Brink said as o Wednesday, the price of petrol would possibly rise in Gauteng by 31.3c per litre and the price of diesel by 24c per litre.
The news of the unchanged repo rate excited FNB chief executive Jacques Celliers.
“We are now seeing the results of concerted efforts across all sectors to reverse the decline of 2016. Last year the government, labour and the private sector stood together to fight against a ratings’ downgrade,” he said.
“We have gained tremendous momentum and this will continue, as we saw recently at the World Economic Forum in Davos.
“I am excited by our concerted efforts to turn this around. There was a dip in confidence in the fourth quarter of 2016, according to our FNB/ BER Consumer Confidence Index, but a number of positive factors have recently emerged.
“GDP (gross domestic product) forecasts now indicate improved growth prospects for 2017,” added Celliers.
Reserve Bank governor Lesetja Kganyago remains concerned about the country’s longer-term inflation trajectory.