South Africa’s central bank left its main interest rate unchanged on Thursday, as the threat of recession softened amid lower inflation in the continent’s most developed economy.
The South African Reserve Bank kept its key interest, or “repo,” rate at 7%, in line with expectations. SARB Governor Lesetja Kganyago also signaled that the central bank could be nearing the end of its hiking cycle.
Mr. Kganyago has raised rates three times in the past year in an effort to curb inflation that continues to hover around the bank’s 6% target ceiling. This week South Africa’s statistical agency said the rate in August was 5.9%, down for the second consecutive month. The bank lowered its inflation forecast for this year to 6.4% from 6.6% previously.
“The [Monetary Policy Committee] remains concerned about the overall inflation trajectory which remains in the upper end of the inflation target range,” Mr. Kganyago said. Still, “despite the improved growth performance in the second quarter, the growth outlook remains constrained.”
On Thursday, the bank said it expects South Africa’s economy to grow 0.4% in 2016, an improvement from its June forecast of no growth. The bank said the economy would likely recover to grow 1.2% in 2017, up slightly from June’s forecast of a 1.1% expansion next year.
Apart from the expectations for tamped down inflation and marginally more optimistic growth, Mr. Kganyago said a stronger rand currency also contributed to the decision to keep rates on hold. South Africa’s beleaguered rand has gained some ground after the ruling African National Congress ultimately lost control of some of the country’s biggest and most important cities, including the capital Pretoria and the business hub of Johannesburg, for the first time since the end of apartheid following municipal elections in August.
“However, some of the positive factors impacting on the rand may be temporary, and the rand remains vulnerable to both domestic and external shocks,” Mr. Kganyago added.