Sarb leaves repo rate unchanged at 6.5%

South Africa’s central bank kept its benchmark repo rate unchanged at 6.5% in a unanimous decision by members of the Monetary Policy Committee on Thursday, saying risks to inflation cited at previous meetings had begun to materialise.

All 25 economists surveyed by Reuters had predicted the repo rate would stay on hold.

“While headline inflation is comfortably within the inflation target band, indications are that we have passed the low point of the current cycle,” Governor Lesetja Kganyago told a news conference, citing the tariff war between the United States and China as well as higher global oil prices as the main dangers to inflation.

On Wednesday data showed headline consumer inflation quickened to 4.6% year-on-year in June, further away from March’s 7-year low but well within the central bank’s target of between 3 and 6%.

All 25 economists surveyed by Reuters had predicted the repo rate would stay on hold.

The bank said the weakening currency as global financial conditions tightened, as the Federal Reserve raised lending rates and lowered it’s global bond buying program.

The bank also cut its growth forecast for 2018 to 1.2% from 1.7%, saying conditions were challenging and would be constrained in the near term by weak consumer spending linked to the recent increase to value added tax and unemployment which is near record levels.

“The domestic economic growth outlook for this year is weaker than we expected in May, Kganyago said.

The continent’s most industrialised economy suffered its worst quarterly contraction in nine years in the first quarter, and consequent data has been mixed, cooling investors enthusiasm over President Cyril Ramaphosa’s ability to deliver long term growth.

The rand extended losses against the dollar following the announcement of the Sarb’s decision. “With inflation still within the 3% to 6% target, the Sarb is likely to be more concerned with the local currency, oil prices and global trade tensions,” comments Lukman Otunuga, research analyst at FXTM.

“It is worth noting that the rand, like many other emerging market currencies, remains highly influenced by external factors. An appreciating dollar coupled with expectations of higher US interest rates could spell more pain for the rand.”