Pretoria - The repo rate will remain unchanged at 7% per annum, the Reserve Bank said on Thursday.
Briefing reporters following the last meeting of the Monetary Policy Committee (MPC) for the year, Reserve Bank Governor Lesetja Kganyago said the decision to keep rates unchanged was a unanimous one.
However, the MPC expressed concern that the country’s inflation trajectory is uncomfortably close to the bank’s 3% - 6% target range.
Data from Statistics South Africa (Stats SA) earlier this week showed that annual headline consumer inflation increased to 6.4% in October, beating market expectation of a 6.3% increase from 6.1% in September.
Kganyago said higher inflation outcomes are forecast in the near-term before a sustained return to within the target range during 2017.
“While domestic economic growth prospects appear more favourable following the positive surprise in the second quarter of this year, the outlook remains constrained against a backdrop of weak domestic fixed investment and low levels of business and consumer confidence,” he said.
Inflation is expected to peak at 6.7% in the fourth quarter of this year, compared with 7.1% previously. It is expected to return to within the target range in the second quarter of 2017.
Inflation is expected to average 6.4% in 2016 and 5.8% in 2017.
The MPC noted that the rand has been affected by global events but that “domestic fundamentals and political developments” have also affected the currency.
Since the previous meeting of the MPC in September, the rand traded in a range of R14.73 and R13.28 against the US dollar. It has appreciated by 6.3% against the US dollar.
The MPC said the domestic economy has remained weak, despite growth of 3.3% in the second quarter.
“This was driven by a rebound in the primary sector, and a surge in real exports. Mainly as a result of the higher starting point, the Bank’s forecast for economic growth for 2016 has been revised upward from 0% to 0.4%. The forecasts for the next two years have been increased marginally by 0.1 percentage points to 1.2% and 1.6 % respectively,” said Kganyago.
However, the bank said it is unlikely that there will be growth in the third quarter.
The risk to the inflation outlook, the bank said, relates to food prices.
“The forecast still expects food prices to peak in the final quarter of this year. The future trajectory of these prices will be highly dependent on the normalisation of rainfall in the coming months. Favourable weather patterns could see food price inflation falling faster than that implicit in the forecast.” – SAnews.gov.za
