Sarb leaves repo rate unchanged at 6.75%

THE South African Reserve Bank (Sarb) yesterday left the repo rate unchanged at 6.75%.

Motivating its first decision on rates for the new year, the bank said international developments had contributed to a more positive inflation outlook since November 2018, when it hiked the rate by 25 basis points.

“Significant declines in international oil prices and a less depreciated exchange rate have been key drivers of this improved outlook. Domestic petrol prices decreased by a cumulative R3.07 per litre (for 95 unleaded in Gauteng) in December and January. Lower food price inflation also contributed to lower consumer price inflation,” Sarb Governor Lesetja Kganyago said.

He added that the bank expected headline inflation to average 4.6% in 2018 and 4.8% in 2019 – down from 5.5% – before increasing to 5.3% in 2020 and moderating to 4.8% in 2021.

“Headline CPI inflation is now expected to peak at around 5.6% in the first quarter of 2020. Core inflation is expected to remain unchanged at 4.3% in 2018 and forecast to average 5.0% in 2019 (down from 5.3%), 5.1% in 2020 (down from 5.5%) and 4.8% in 2021.

The bank welcomed the South African economy’s recovery from a technical recession, but cautioned that growth remained constrained.

“Although GDP increased by 2.2% in the third quarter of 2018, private sector fixed investment remains weak and production in key sectors is volatile. The Sarb expects growth in 2018 to have averaged 0.7%.”

Growth forecast for 2019 has been adjusted downwards to 1.7%.