South Africa: Central Bank stays on hold in March, warns of political instability
March 30, 2017
At its policy meeting on 30 March, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) left the repurchase interest rate unchanged at 7.00%, a decision that was in line with market expectations. The Central Bank has now kept interest rates unchanged at 7.00% for an entire year, although it previously signaled that it could consider a further rate hike, should inflation rise.
The strengthening of the rand in the past months has helped inflation to fall towards the top end of the Bank’s inflation target range, but upward risks to inflation may reappear given the strong volatility seen in the exchange rate recently, as a result of elevated levels of political uncertainty. According to the Central Bank, monetary policymakers remain concerned that the increased political uncertainty could have a negative impact on private investment and household spending, and further undermine employment growth.
The recent political instability in the country, and consequent volatility in South Africa’s financial markets, is the result of President Jacob Zuma’s battles with his finance minister, Pravin Gordhan, and speculation that the president wants to oust him. This is threatening to derail a long-sought decline in the country’s inflation and the governor of the Central Bank gave a clear warning of the risks associated to the political turmoil by keeping interest rates on hold.
The Central Bank has been struggling with a combination of rising inflation and slowing economic growth in recent months. The monetary authority recognizes that the economy has passed the worst already, but stressed that the domestic growth outlook remains weak.
Author: Ricardo Aceves, Senior Economist