South Africa keeps rate at 5¾%, increases inflation forecast to 4.9%

By Toni Weeks

San Luis Obispo, Calif., May 21 – South African Reserve Bank’s Monetary Policy Committee voted four to two to keep the repurchase rate unchanged at 5¾%, according to a news release from the bank.

The committee said that the downward trend in inflation, which was mainly attributable to lower oil prices, has reversed. Headline inflation is expected to temporarily breach the upper end of the target range early next year, peaking at 6.8%, and remain “uncomfortably close” to the upper end of the target band thereafter for most of the forecast period, which has now been extended to the end of 2017.

The rand exchange rate remains an upside risk to the inflation outlook, as uncertainty regarding U.S. monetary policy continues.

Domestic demand in South Africa remains subdued while electricity constraints continue to weigh on output growth and general consumer and business confidence, the committee said.

The year-over-year inflation rate as measured by the Consumer Price Index for all urban areas was 4% in March and 4½% in April.

According to the bank’s latest forecasts, inflation is now expected to average 4.9% in 2015, compared with the previous forecast of 4.8%. Although the upward revision was small, the persistence of medium-term inflation at elevated levels and the deteriorating risks to the outlook are an increasing concern to the bank, the release said.

The bank said the deteriorating inflation outlook suggests that its unchanged stance cannot be maintained indefinitely.

© 2015 Prospect News.
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