South Africa Monetary Policy September 2016

South Africa

SARB keeps repo rate unchanged in September

On 22 September, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) decided to maintain the repurchase rate unchanged at 7.00%. So far this year, the Bank has increased its benchmark rate to fight high inflation twice.

The Central Bank commented that domestic growth prospects have improved following the positive GDP reading in the second quarter, however the outlook remains constrained against the backdrop of weak fixed investment and low levels of business and consumer confidence. This month, the MPC revised up its growth prospects and now expects the economy to expand 0.3% this year, which is an improvement compared to the flat reading previously estimated. Moreover, for next year, the GDP growth forecast was revised up from 1.1% to 1.2%.

Internationally, the main risks to South Africa’s economy stem from the possibility of monetary policy tightening in the U.S., with continued uncertainty regarding the timing and the pace of future movements. Recently, the rand has benefited from Q2’s stronger-then-expected GDP outcome and from a significant narrowing of the current account deficit due to a sizeable trade surplus in the second quarter. The Bank commented on future movements of the rand and added that, “the rand, however, remains vulnerable to future changes in the US monetary policy stance, domestic political developments as well as to a risk of a possible ratings downgrade later in the year.”

Regarding price developments, the Bank commented that inflation returned to within its target range of 3.0%-6.0% in August. This month, the MPC revised its inflation forecasts for both this year and next. The Bank now expects inflation to average 6.4% in 2016 and 5.8% in 2017 (previously estimated: 2016: 6.6%, 2017: 6.0%). According to the Committee, “the downward revisions are due in part to a lower starting point, lower administered price inflation assumptions (including petrol, electricity and rates and taxes inflation), as well as a less depreciated exchange rate assumption.”

FocusEconomics Consensus Forecast panelists expect the repo rate to end this year at 7.37%. In 2017, the panel expects the repo rate to end the year at 7.59%.

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South Africa Monetary Policy Chart

SouthAfrica Monetary Policy September 2016

Note: Monetary Policy Rate in %.
Source: South African Reserve Bank (SARB).

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