SARB keeps repo rate unchanged, downgrades growth projection
The South African Reserve Bank's (SARB'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 SARB 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: Among the risks to inflation identified by the monetary policy committee was the strength of the US dollar, sustained high oil prices, escalating trade tensions and electricity prices. Kganyago noted that inflation had remained within the target band of 3% to 6%, but the central bank model projects an increase in headline inflation, peaking close to the upper end of the target band. He said the impact of the higher VAT rate had been less significant than expected, but the weaker rand and higher oil price assumptions would have a bearing on inflation. Projections are for inflation to average 4.8% in 2018, marginally down from 4.9%. 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.Headline 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. He said that a key domestic driver to inflation from the wage side, was the above-inflation hikes in public sector wages.
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%.During a question and answer session, Kganyago explained that inhibitors of growth are structural in nature, but there are low hanging fruit to grab hold of, such as the country's "tourism assets". "If we are to make it easier for tourists to be here, we would benefit from that. "He also referenced the National Development plan, saying: "We must just execute it and we will get growth going in this economy".
