Reserve Bank boss hints at likely interest rate increase

THE Reserve Bank was in a ratetightening cycle – implying a possible interest rate hike – although the pace of normalisation would depend on the inflation outlook and economic growth, Reserve Bank deputy governor Francois Groepe said.

“We are, however, in a hiking cycle and the deteriorating inflation outlook may necessitate policy action as the window for an unchanged stance has narrowed,” Groepe told an Actuarial Society of SA investment seminar in Cape Town yesterday.

He said the inflation outlook had deteriorated to uncomfortable levels.

Inflation expectations remain close to the upper end of the 3% to 6% target range.

The bank expects inflation to accelerate in coming months and to temporarily breach the target band at an average of 6.8% in the first quarter of next year.

The central bank forecast inflation to average 6.1% and 5.7% in 2016 and 2017, respectively.

It said

significant upside risks to this outlook included electricity tariff increases, the weak rand and the level of wage settlements.

Groepe said the uncertainty regarding the degree of the effects of a weaker rand on prices was concerning.

The repo rate was last raised by 25 basis points in July last year. – BDlive