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South Africa's repo rate remains unchanged at 7 pct

Xinhua, July 22, 2016 Adjust font size:

South Africa repo rate remains unchanged at 7 percent, it was announced on Thursday.

The decision by the South Africa Reserve Bank (SARB) came as expected by economic experts.

"We pressed the pause button on the hiking cycle," SARB Governor Lesetje Kganyago said.

"The thing about the interest rate path is you have got to have certainty, you can't just chop and change as you go along," he added.

"If inflation expectations appeared stable or anchored at just more than 6 percent for now, risks are high that expectations can easily become unanchored in a wage-round year with food price issues," Peter Attard Montalto, consulting firm Nomura's senior emerging markets strategist, told Xinhua.

Another economist concurred with Montalto. "The food prices would probably return to trend rates early next year", while a low oil price would ensure stable fuel prices," Efficient Group economist Francois Stofberg said.

David Maynier, DA shadow minister of finance, said the revised SARB slow economic forecast for 2016 down to "zero percent" should be a wake-up call for the government, "which now needs to get its act together and implement the structural reforms necessary to boost economic growth and create jobs in South Africa".

The First National Bank said on Monday that better rains were expected this summer, which would eventually bring relief on food prices.

SARB Deputy Governor Kuben Naidoo said that although the inflation trajectory was looking better out to the third quarter of 2017, monetary policy was really only effective beyond 12 months' time, and "we still think in the period beyond 2017 there are significant risks to inflation".

The South Africa inflation has gone beyond the Bank's 3 percent to 6 percent target.

According to the latest data released on Wednesday, the consumer price index (CPI) rose 6.3 percent in June as the economy weakened.

The Bank now expects CPI inflation to average 6.6 percent in 2016, Governor Kganyago said on Thursday, from an earlier forecast of 6.7 percent, while the 2017 forecast was revised to 6 percent from 6.2 percent and 2018 to 5.5 percent from 5.2 percent.

The Bank now sees inflation peaking at 7.1 percent in the fourth quarter of this year. Food inflation is expected to peak at 12 percent, also in the fourth quarter.

The Bank on Thursday revised its projection for growth this year to 0 percent from 0.6 percent. Looking further ahead, it puts 2017 growth at 1.1 percent, from a previous 1.3 percent forecast, and the 2018 outlook is for growth of 1.5 percent from 1.7 percent before.

The slow economic growth is one of the main reasons of international rating agencies, which will review their ratings of SA again at the end of the year, after South Africa dodged the junk status in June. Endit