Reserve Bank leaves benchmark rate unchanged at 7%

The South African Reserve Bank (SARB) left interest rates unchanged for a third consecutive meeting as it cut its inflation forecast while economic growth prospects remain grim.

The central bank left the benchmark repurchase rate at 7%, SARB governor Lesetja Kganyago told reporters Thursday in Pretoria. This was in line with the forecasts of all 27 economists in a Bloomberg survey.

The Monetary Policy Committee has raised the key lending rate by 200 basis points since the start of 2014 in a bid to limit price growth to within its 3% to 6% target band. It left borrowing costs unchanged since March to help support an economy forecast to expand at the slowest pace this year since a 2009 recession due to weak export demand, the worst drought in more than a century and low commodity prices.

“I think that they are still between a rock and a hard place, even though projections are better now versus before,” Thabi Leoka, an economist at Argon Asset Management in Johannesburg, said by phone before the release of the data. 

“Given the slow growth and given the inflationary risk, the best decision is to remain on hold.”


The MPC increased its growth forecast for 2016 to 0.4% from 0%, Kganyago said. The committee reduced its forecast for average inflation for the year to 6.4% from 6.6%.

While price growth slowed to 5.9% in August, the first time this year the rate fell below the upper end of the central bank’s target band, Kganyago said inflation will only return to the band sustainably in the second quarter of next year.

Inflation expectations, as measured by the five-year break even rate, are at the lowest in more than a year. The rand regained all of the ground it lost against the dollar since the first reports on August 23 that the police wanted to question Finance Minister Pravin Gordhan in relation to a special investigative unit established during his tenure at the revenue service.

The rand has strengthened 15% against the dollar this year after losing over 25% of its value in 2015. It was 0.8% stronger at 13.4748 per dollar by 3.28pm on Thursday.

“The inflation outlook is now more subdued, which would suggest an extended pause in the interest rate hikes,” Moody’s Investors Services said in a report last week. 

“Since the overruns over the inflation targets were mostly driven by food prices and overall weak business confidence, additional monetary tightening could depress already subdued growth.” – Bloomberg

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Amogelang Mbatha 1
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