South Africa: Central Bank maintains rates at January meeting but remains vigilant
January 24, 2017
At its 24 January monetary meeting, the first of this year, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) announced its decision to maintain the repurchase rate at 7.00%. The markets had expected the decision, given that inflation in January moderated. Nonetheless, while the Bank reiterated that the tightening cycle is likely near its end, it cautioned that a deterioration in the near-term inflation outlook “requires increased vigilance”. The Bank added that it could reassess its longer-term outlook for interest rates, should upside risks to inflation persist.
The Central Bank has left the main monetary policy rate unchanged at 7.00% since the25 basis-point increase in March 2016. The SARB has been saying that the tightening cycle it is near to an end since September of last year. In terms of price developments, the Bank commented that its inflation outlook has deteriorated since its November assessment. The Bank now sees that inflation will return to within the target range of between 3.0% and 6.0% in Q4 2017 and average 6.2% this year (previous forecast: 5.8%). According to the Bank, “this deterioration is mainly due to changed assumptions regarding international oil prices, the domestic fuel prices and the outlook for food prices, which more than offset the more favorable exchange rate assumption."
Following weak economic activity in the fourth quarter and at beginning of 2017, the Central Bank revised down its growth forecast for this year slightly to 1.1% from a previous 1.2%. It left forecast for 2018 unchanged at 1.6%. Regarding global economic conditions, the Central Bank signaled that uncertainty persist regarding prospects for Europe and the U.S. economy. The Central Bank will remain alert of the policies of the new U.S. administration.
Author: Oliver Reynolds, Economist