South Africa’s c-bank opts for 25bp rate hike as inflation concerns overtake worsened growth outlook

By bne IntelliNews November 19, 2015

Facing a tough dilemma whether to act now or later in a lacklustre growth environment with no demand pressures coupled with uncomfortably high inflation expectations, South Africa’s central bank took a defensive stance and hiked its key repo rate by 25bp to 6.25%, aiming to avoid an “even stronger monetary policy response in the future, with more severe consequences for short-term growth”. Four members of the monetary policy committee (MPC) voted for an increase, while two favoured an unchanged stance, the Reserve Bank of South Africa (SARB) said in a statement.

This is the second 25bp rate hike in South Africa this year. SARB held the repurchase rate, at which it lends rands to private banks at 5.75% for a year until July, after lifting it by a total of 75bp in the first half of 2014 to curb rising inflation and a depreciation of the rand.

In the much dovish statement on November 19, governor Lesetja Kganyago reduced marginally South Africa’s growth outlook by 0.1pp for both 2015 and 2016 to 1.4% and 1.5%, respectively, but warned that while the risks to the outlook were more or less balanced at the previous meeting in September, they are now assessed to be on the downside. Although not expecting the economy to fall into recession (two consecutive quarters of contraction), the governor noted that it remains weak and a somewhat surprising recovery of the manufacturing sector will be largely offset by expected further contractions in mining and agriculture in the third quarter.

SARB’s inflation forecast remained relatively unchanged (an average annual inflation of 4.6% in 2015, 6.0% in 2016 and 5.8% in 2017), but the risks to the forecast have increased, Kganyago said, pointing at a marked depreciation of the rand, worsening drought conditions and their likely impact on food prices, and the possibility of additional electricity tariff adjustments.

“The general approach of the MPC is to attempt to see through exogenous shocks and react to second-round effects. However, shocks of a persistent nature, for example extended periods of currency depreciation or drought, or multi-year increases in electricity prices make it more difficult to disentangle these first and second round effects,” Kganyago said.

He added that despite the increase, the MPC still considers the monetary policy stance accommodative.

“Monetary policy actions will continue to focus on anchoring inflation within the [3%-6%] target range while remaining sensitive, to the extent possible, to the fragile state of the economy,” Kganyago concluded.

Related Articles

UK’s Vedanta Resources to invest $1bn in Zambian copper mine

The UK-listed diversified resource and mining company Vedanta Resources will invest $1bn in its Zambian mining unit Konkola Copper Mines (KCM), creating 7,000 jobs, the mining firm said in a ... more

Almaty cost of living lowest among major cities

Kazakhstan’s largest city and business centre Almaty has dropped to last place on the Economist Intelligence Unit’s bi-annual ranking of the ... more

AB InBev sells 54.5% stake in African Coke bottling business for $3.15bn

Anheuser-Busch InBev will sell a 54.5% stake in Africa's largest Coke bottler to Coca-Cola Company for $3.15bn, the two companies said in a joint statement on December 21. The deal is expected to ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

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

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

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

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

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

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A 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.

Dismiss