The Reserve Bank has decided to keep the repo rate unchanged at 6.5% per annum, Governor Lesetja Kganyago said on Thursday.
“At these levels, the MPC [Monetary Policy Committee] still assesses the stance of monetary policy to be accommodative and appropriate, given the forecast inflation trajectory and the current state of the economy.
“However, with risks and uncertainties at high levels, the MPC will maintain its vigilance to ensure that inflation remains well within the inflation target range, and will adjust the policy stance should the need arise,” said the governor following the MPC meeting.
At its last meeting in March, the MPC reduced the repo rate by 25 basis points to 6.5% in line with market expectation. This was the first time since July 2017 that the central bank reduced the repo rate.
However, the MPC stated that the impact of the Value Added Tax (VAT) increase by 1% to 15%, which came into effect in April, may still be felt in the coming months.
When coming to inflation, the central bank said it assesses the risks to the inflation forecast to have moved to the upside.
“This change is mainly due to global developments. A key uncertainty relates to the outlook for the dollar, which has appreciated against most currencies. The spillover effects on emerging markets could become more severe,” Kganyago said.
Oil prices also pose an upside risk to the inflation forecast, while the MPC added that greater clarity with regards to electricity tariffs is expected next month. The National Energy Regulator of SA (Nersa) is scheduled to respond to Eskom’s application for an increase in the order of 30%.
The bank’s current assumption is for an 8% increase from mid-2019, followed by another increase in 2020.
“The possibility of an increase in excess of these assumptions poses an upside risk to our inflation forecast,” said Kganyago.
The MPC noted that the domestic growth outlook remains challenging, although growth is still expected to outperform recent year outcomes.
“This is despite the possibility of a contraction in Gross Domestic Product [GDP] in the first quarter of this year, following negative growth in both the mining and manufacturing sectors. The Reserve Bank’s forecast for GDP growth is unchanged at 1.7% for 2018, but has been revised up from 1.5% to 1.7% for 2019,” said Kganyago.
The forecast for 2020 is unchanged at 2%.
Kganyago said the implied path of policy rates generated by the Bank’s Quarterly Projection Model reflects one increase of 25 basis points during the final quarter of 2018 and a similar increase in mid-2019.
“Two further increases are indicated in 2020. The generated path remains a broad policy guide, and the extent to which the MPC follows it will be determined by, among other things, the MPC’s assessment of the balance of risks to the forecast.”
The decision to keep the repo rate unchanged was unanimous. – SAnews.gov.za
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Article source: http://mype.co.za/new/repo-rate-unchanged-at-6-5/103277/2018/05