The South African Reserve Bank (SARB) today left the repurchase rate (repo rate) unchanged at 3.5 percent as the 2021 consumer inflation was now forecast to moderate slightly lower.
SARB governor Lesetja Kganyago said the decision to leave interest rates unchanged was unanimous among all five Monetary Policy Committee (MPC) members.
However, Kganyago warned that interest rates could increase by 50 basis points before the end of the year.
“The implied policy rate path of the Quarterly Projection Model (QPM) indicates an increase of 25 basis points in each of the second and fourth quarters of 2021,” he said.
Data from Statistics South Africa (StatsSA) yesterday showed that the annual rate of the Consumer Price Index (CPI) rose to 4.4 percent in April, up from 3.2 percent in March.
This CPI reading was the highest inflation rate since February 2020, pushed up by rising prices of food and transport due to an uptick in economic activity.
Kganyago said despite inflation risk increasing, the MPC still expected inflation to be contained in 2021, before rising to around the midpoint of the inflation target range in 2022 and 2023.
Headline consumer price inflation forecast for 2021 is slightly lower at 4.2 percent, down from 4.3 percent, and for 2022 and 2023 unchanged at 4.4 percent and 4.5 percent, respectively.
“The policy stance and repurchase rate level remains highly accommodative, and will remain so even with steps taken to normalise interest rate levels in response to rising inflation,” Kganyago said.
“With inflation expectations remaining stable, and despite inflation risk increasing, the MPC still expects inflation to be contained in 2021, before rising to around the midpoint of the inflation target range in 2022 and 2023.”
BUSINESS REPORT ONLINE