South Africa’s c-bank hikes key rate to 5.75%, slashes 2014 GDP forecast to 1.7%, lifts inflation outlook

By bne IntelliNews July 17, 2014

The South African Reserve Bank (SARB) decided on Thursday (July 17) to lift its key repo rate by 25 basis points to 5.75%, saying it continues to face “an increasingly difficult dilemma” of dealing with rising inflation and slowing growth.

SARB’s governor Gill Marcus told a news conference that since the previous meeting of the Monetary Policy Committee (MPC) in May, the economic growth outlook has deteriorated against the backdrop of the five-month platinum strike that ended in late June and the ongoing for more than two weeks now strike in the steel and engineering sector. At the same time, inflation spiked to 6.6% in May, breaching the upper end of the central bank’s 3%-6% target range, driven primarily by the depreciation of the local rand currency and rising food prices. In addition, a possible wage-price spiral resulting from recent wage settlements and wage demands considerably in excess of inflation and productivity growth have added to the upside risk to the inflation outlook.

SARB revised slightly up its headline inflation forecast - it is now expected to average 6.3% in 2014, compared with 6.2% previously, with a peak of 6.6% (previously 6.5%) anticipated in Q4. The forecast average inflation for 2015 was raised to 5.9% from 5.8%, and the forecast for 2016 was increased to 5.6% from 5.5%. Inflation is still expected to return to within the target band in Q2 2015, provided that there are no further shocks to the system, particularly from a possible hike in electricity tariffs.

SARB noted that after the 0.6% q/q GDP contraction in Q1, growth in Q2 is expected to be positive, but subdued, particularly in the light of weak mining and manufacturing data in May. It lowered its 2014 growth projection to 1.7% from 2.1% expected in May and 2.8% at the beginning of the year, stressing that the forecast assumes a speedy resolution of the current strike, while a potential protracted work stoppage by the metal workers would have much wider ramifications because of the direct linkages to other sectors of the economy. The bank cut also its growth forecasts for 2015 and 2016 to 2.9% and 3.2% from 3.1% and 3.4%, respectively.

SARB noted also that the impact of the platinum strike on exports began to be felt in April and May, and it is estimated that during these two months the value of platinum group metals (PGM) exports was by around ZAR 20bn (USD 1.9bn) lower than in Q1. This is likely to put pressure on the current account balance in Q2, following a surprise narrowing of the deficit to 4.5% of GDP in Q1.

The MPC said it remains concerned about weak growth, widening output gap, negative employment outlook and the further upside risks to inflation. It stressed, however, that the sources of the below par growth performance are largely outside the realms of monetary policy and urged management and labour to improve their interaction and relationships and “get South Africa back to work”. Moreover, the bank saw an urgent need to implement necessary structural reforms, as envisaged in the National Development Plan, in order to achieve higher and more inclusive growth.

Regarding its future monetary policy decisions, SARB repeated that that the economy is in a rising interest rate cycle, and interest rates will continue to be normalised, as any future moves will be gradual and highly data dependent.

Related Articles

IMF slashes South Africa’s 2016 growth outlook to 0.7%

The International Monetary Fund (IMF) has lowered sharply its 2016 GDP growth forecast for South Africa to just 0.7% from 1.3% anticipated in October, its World Economic Outlook (WEO) update released ... more

MTN Nigerian fine raised back to $5.2bn, court refuses to freeze company bank accounts

The record fine, imposed on South Africa-based telecoms group MTN by the Nigerian Communications Commission (NCC) has been raised back to $5.2bn, publications in local media revealed. The ... more

SA IT services firm EOH enters four new markets

South African IT services company EOH has continued its expansion drive through the acquisition of majority stakes in six ICT companies in four new territories, it said in a bourse filing on January ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.