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SARB leaves repo rate unchanged

Economy
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Johannesburg - The South African Reserve Bank (Sarb) on Thursday left its benchmark repo rate unchanged at seven percent per annum, a seventh time in a row since May last year.

Reserve Bank governor Lesetja Kganyago announced that five members of the Monetary Policy Committee (MPC) preferred an unchanged stance while one member preferred a 25 basis point reduction. In the end, the MPC kept the repurchase rate – the interest rate at which the Reserve Bank lends money to commercial banks – unchanged at seven percent, just as it did in January and March this year, as well as in November, September, July and May last year.

The prime lending rate, the figure charged by banks to customers, will also remain unchanged at 10.5 percent. Kganyago said the MPC remained of the view that the current level of the repo rate was appropriate for now and and that the country was at the end of the tightening cycle. He said the MPC assessed the risks to the inflation outlook to be more or less balanced.

Headline inflation in April was lower than expected, largely related to the pace of food disinflation. International oil prices also firmed since the previous MPC meeting in April, having declined to levels below U.S.$50 per barrel at one stage. Kganyago said the outlook for the rand, and therefore the risks to the inflation outlook, will be highly sensitive to unfolding domestic political uncertainty, as well as decisions by the credit ratings agencies. He said the rand remains a key upside risk to the forecast.


The governor said the rand could weaken significantly in the event of a worst-case ratings downgrade scenario that could result in South African government bonds falling out of the global bond indices. A downside risk may come from electricity tariffs. Kganyago said the domestic growth outlook had deteriorated amid weak business and consumer confidence.

Sarb's forecast for GDP growth has been revised down for the entire forecast period, by 0.2 percentage points for 2017 and 2018, and by 0.3 percentage points in 2019. Kganyago said this downward revision is due in part to the expected impact of the sovereign credit ratings downgrade on domestic private sector gross fixed capital formation in particular.

AFRICAN NEWS AGENCY
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