Reserve Bank Governor Lesetja Kganyago

The South African Reserve Bank cut the repo rate for the first time in five years as inflation eased to a 19-month low. 

Bloomberg reports that the Monetary Policy Committee reduced the benchmark repurchase rate by 25 basis points to 6.75 percent. Only three of 23 economists in a Bloomberg survey had forecast a cut. Four of the MPC’s six members voted for the reduction.

The key lending rate had remained unchanged since March last year after the central bank added 200 basis points to the rate since 2014 to bring prices growth into the bank’s target range. 

Slow gross domestic product expansion due to weak demand for locally made goods by South Africa’s export partners and a spate of political scandals have complicated the task of the central bank, which is fighting off a challenge to its mandate by the anti-graft ombudsman.

Slow growth, failure to improve governance at state-owned companies and a shock cabinet shuffle saw two ratings companies downgrade South Africa’s foreign debt to junk in April.

The Public Protector instructed lawmakers to start a process to amend the nation’s constitution to make the Reserve Bank focus on the “socioeconomic well-being of the citizens” rather than inflation. The lender has asked the courts to review and set aside the instruction, and the ombudsman isn’t challenging the application.

The bank expects inflation to remain within the target band of 3 to 6 percent until at least the end of 2019. It lowered the forecast for average price growth this year to 5.3 percent from 5.7 percent. Inflation will average 4.9 percent in 2018.

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