Repo rate remains unchanged — Reserve Bank

Lesetja Kganyago (GCIS)

Lesetja Kganyago (GCIS)

The SA Reserve Bank’s monetary policy committee has left the repo rate unchanged at 6.5% in a unanimous decision.

The announcement, made by the central bank’s governor Lesetja Kganyago at a media briefing in Pretoria on Thursday afternoon, was in line with expectations of most economists.

The repo rate is the benchmark interest rate at which the Reserve Bank lends money to other banks. Changes in the repo rate affect the prime lending rate, which is the lowest rate at which banks start lending to clients.

With the repo rate unchanged, the prime lending rate will remain at 10%.

Inflation outlook

Kganyago noted that inflation had remained within the target band of 3% to 6% but the SARB’s model projects an increase in headline inflation, peaking close to the upper end of the target band. So far the impact of the higher VAT rate has been less than expected but the weaker rand exchange rate and higher oil price assumptions will have a bearing on inflation.

Projections are for inflation to average 4.8% in 2018, down from 4.9% previously. It is expected to increase to 5.6% (up from 5.2%) in 2019 and decrease again to 5.4% (up from 5.2%) in 2020.

Consumer inflation is expected to peak at 5.7% in the first and second quarters of 2019, and is expected to decline to 5.3% by the end of 2020.

The forecast for core inflation is up from 4.5% to 4.6% for 2018, up from 5.1% to 5.5% for 2019 and up from 5.1% to 5.3% for 2020.

Growth revised down

Kganyago said the central bank expects GDP growth of 1.2% in 2018, down from its previous estimate of 1.7%.

This follows a contraction in GDP by 2.2% during the first quarter of the year and early indications of modest growth in the second quarter.

“The [growth] outlook remains constrained,” he said. SARB expects growth to increase to 1.9% in 2019. The forecast for 2020 is unchanged at 2%. — Fin 24

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