South Africa: South African Reserve Bank hikes the repo rate again in March
March 18, 2016
On 17 March, the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) decided to increase the repurchase rate by 25 basis points from 6.75% to 7.00%. This was the second consecutive meeting in which the Bank hiked the repo rate in order to fight high inflation.
The Central Bank commented that growth remains subdued following the broad-based weakening of the economy in the final quarter of last year. Q4’s deceleration came on the back of contractions in the agricultural and manufacturing sectors. Moreover, according to the Bank, “the outlook for the first quarter for mining and manufacturing is constrained, following sharply negative growth rates in both sectors in January, particularly in mining. […] The continuing drought also points to an unfavourable outlook for the agricultural sector.” As a result, the SARB revised its growth forecasts this month and now expects the economy to expand 1.8% in 2016 and 1.4% in 2017 (previous forecast: 0.9% and 1.6%, respectively).
Regarding price developments, the Bank commented that since the previous Monetary Policy Committee meeting in January, higher food prices have pushed inflation above the upper end of the inflation target range. However, following a tighter monetary policy, the downward revisions to the international oil price and electricity tariff assumptions, the Central Bank expects inflationary pressures to slightly abate in the medium term. As a result, this month, the Bank’s inflation forecasts have improved somewhat compared to the last meeting’s estimates. Nevertheless, inflation is still expected to remain outside the Bank’s target range. Following inflation of 4.6% in 2015, the SARB now expects inflation to average 6.6% in 2016 and 6.4% in 2017 (previous forecast: 6.8% and 7.0%, respectively).
Author: Dirina Mançellari, Senior Economist