Inflation, weak rand lead to 25-point interest rate increase

THE Reserve Bank increased interest rates by 25 basis points yesterday‚ citing rising inflation and weak rand concerns.

The decision to raise rates follows a three-day meeting of the bank’s monetary policy committee.

“Food-price pressures‚ driven by the drought and the depreciated exchange rate‚ have intensified by more than previously forecast and remain a significant upside risk to inflation‚” bank governor Lesetja Kganyago said.

The bank said while it did not deliberate on politics during meetings‚ the effect on the currency was concerning. Kganyago said‚ however‚ that they would prefer stable politics.

The inflation forecast for this year improved to 6.6% from 6.8%, while that for next year was projected at 6.4% from 7% before. Inflation is forecast to average 5.5% in 2018.

“These changes are due in part to the higher interest rate assumption following the increase in the repo rate at the previous meeting‚ a slightly less depreciated exchange rate assumption‚ and downward revisions to the international oil price and electricity tariff assumptions‚” Kganyago said.

The bank revised down its economic growth forecast for this year to 0.8% from 0.9% before‚ and to 1.4% from 1.6% before.

“The potential output growth estimate is unchanged at 1.5%, rising to 1.8% by 2018‚” Kganyago said. – BDlive