South Africa’s central bank on Thursday pause its policy tightening program at 7 percent.
The Monetary Policy Committee, led by Governor Lesetja Kganyago, said the country’s inflation and slow growth highlight the challenges facing its policy.
“Although headline CPI inflation has moderated since February, the respite is expected to be temporary, as food and petrol price pressures continue to intensify. The recovery in the rand exchange rate in April also proved to be short-lived, as both domestic and external factors weighed on the currency.”
“At the same time, domestic economic growth continues to disappoint. While there are signs that the economy may be reaching the lowest point in the growth cycle, the recovery is expected to be slow with downside risks. Global economic growth and financial market conditions have stabilised somewhat since the previous MPC meeting, but a high degree of risk and uncertainty persists,” Kganyago said.
He further said 2016 inflation forecast has been adjusted from the previous 6.6 percent to 6.7 percent, while 2017 and 2018 inflation is now forecast to average 6.2 percent and 5.4 percent respectively. This is down from an earlier year forecast.
According to the apex bank, the core inflation forecast was slightly improved from the previous 6.2 percent to 5.9 percent in 2016, with 2017 and 2018 unchanged at 5.7 percent and 5.2 percent.
However, economists believe at some point this year central bank will increase rates by 25 basis points.
“We’re more concerned about downside growth risks than upside inflation risks at this stage,” Elna Moolman, an economist at Macquarie Group Ltd. in Johannesburg, said by phone before the decision was announced. “At some point they will increase by another 25 basis-points, possibly before the end of the year, but for now I believe it’s appropriate to pause,” he said.
