South Africa’s Reserve Bank Raises Repo rate by 25 basis points in March

Johannesburg, South Africa, Capital Markets in Africa — The South Africa Reserve Bank’s Monetary Policy Committee (MPC) raised the Repo rate by 25 basis points to 7.00%, as a result of inflation rise concern.  This takes the cumulative increases to 2.00 percentage points since the MPC started tightening policy in January 2014.

Regarding inflation, the MPC commented that since the previous MPC meeting in January, headline inflation has exceeded the upper end of the target range as pressures from higher food prices in particular have intensified. Although the longer-term inflation outlook has improved somewhat, inflation is still expected to remain outside the target range for an extended period, and upside risks remain. The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas increased markedly in January to 6,2 per cent, up from 5,2 per cent in December. Food price pressures intensified, with food and non-alcoholic beverages inflation accelerating to 6,9 per cent, up from 5,9 per cent previously. While the Bank’s measure of core inflation, which excludes food, fuel and electricity, which had been relatively stable for some 2 time, increased from 5,2 per cent in December to 5,6 per cent in January. Part of this may reflect some evidence of higher exchange rate pass-through.

On the economy, the Reserve Bank highlighted that South Africa’s economic growth prospects remain fragile following a fairly broad-based weakening in the final quarter of last year, while global economic prospects remain uncertain. The Q4’s deceleration came on the back of contractions in the agricultural and manufacturing sectors. Annual economic growth of 1,3 per cent in 2015 was in line with the Bank’s expectations, but the forecasts for 2016 and 2017 have been revised down from 0,9 per cent and 1,6 per cent, to 0,8 per cent and 1,4 per cent. Growth of 1,8 per cent is forecast for 2018, the Central bank noted.

The rand exchange rate has recovered somewhat from the lows experienced in December and January, but nevertheless remains highly volatile, and vulnerable to domestic and external developments, the MPC’s press release commented.

Leave a Comment