South Africa’s c-bank holds repo rate at 5.75%, raises inflation outlook

By bne IntelliNews March 26, 2015

South Africa’s central bank maintained on March 26 its key repo rate unchanged at 5.75% amid sluggish domestic economy and subdued price pressures, in line with expectations, but signalled that a tightening is possible soon as the outlook for both growth and inflation has deteriorated.

The South African Reserve Bank (SARB) raised its average headline inflation forecast for 2015 to 4.8% from 3.8%, citing the partial reversal of the recent petrol price declines, higher fuel levies, emerging upside pressures on food (due to the severe drought in some of the maize producing areas of the country), and possible further electricity tariff increases, as well as the weakness of the rand against the backdrop of the expected, but uncertain, tightening of US monetary policy. Potential wage and salary increases in excess of inflation and productivity growth also pose an upside risk to inflation. The forecast for 2016 was raised to 5.9% from 5.4%. The average core inflation outlook was kept largely unchanged - at 5.5% and 5.2% in 2015 and 2016, respectively.

SARB maintained its GDP growth outlook for 2015 at 2.2%, but revised it down to 2.4% from 2.3% for 2016, reiterating that the economy remains weak amid electricity supply constraints, low business confidence, and relatively subdued domestic demand.

SARB hiked the repurchase rate, at which it lends rands to private banks, by a total of 75bp last year to curb rising inflation and a depreciation of the local rand currency.

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