South Africa Monetary Policy July 2016

South Africa

South African Reserve Bank makes no change to repo rate in July

On 21 July, 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, while the Committee remains concerned about the inflation trajectory in the medium-term, economic weakness in domestic demand allowed some room to postpone further policy tightening. Recent high-frequency data suggest a marginal improvement in the economy in the second quarter, which was mainly driven by expansion in the mining and manufacturing sectors. Meanwhile, high unemployment rates continued unabated in Q2. This month, the Bank downgraded its estimates and now expects the economy to remain stagnant this year, which is down from the 0.6% increase previously estimated. Likewise, the SARB slightly revised its growth projection for next year, cutting it from 1.3% to 1.1%.

Regarding price developments, the Bank commented that inflation was marginally lower than expected in May. However, the Bank expects inflation to accelerate further this year amid high prices for agricultural products. The recent exchange rate volatility has mostly been a result of external factors. While the rand depreciated sharply after the UK referendum, it has recovered quickly, partly due to the global search for high-yielding assets and increases in commodity prices. The Bank expects inflation to drop to within the target range of 3.0%–6.0% in the third quarter of 2017. It also revised its inflation projections for both this year and next and now expects inflation to hit 6.6%, on average, this year before moderating slightly to 6.0% next year.

Within this setting, FocusEconomics Consensus Forecast panelists expect the repo rate to end this year at 7.37%. For next year, the panel expects the repo rate to end the year at 7.59%.

Author:, Economist

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South Africa Monetary Policy Chart

SouthAfrica Monetary Policy July 2016 1

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

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