May 23, 2019 / 1:02 PM / 5 months ago

HIGHLIGHTS-South African central bank comments on rate decision

PRETORIA, May 23 (Reuters) - Below are comments from South African Reserve Bank (SARB) Governor Lesetja Kganyago on Thursday as he announced the central bank’s latest decision on its benchmark repo rate.


“Recent monthly inflation outcomes have remained around the mid-point of the inflation target range, in part due to weak demand and positive inflation data surprises. The medium-term inflation outlook has moderated slightly.”

“The inflation forecast generated by the SARB’S Quarterly Projection Model (QPM) has improved since the previous MPC. Headline inflation is expected to average 4.5% in 2019 (down from 4.8%, increasing to 5.1% in 2020 (down from 5.3%) and moderating to 4.6% in 2021 (down from 4.7%). Headline CPI inflation is expected to peak at 5.5% in the first quarter of 2020 and settle at 4.5% in the last two quarters of 2021.”

“The main drivers of the forecast are a lower starting point for food and services inflation, and revised oil price assumptions.”

“Moderation in rental prices, unit labour costs and inflation expectations also contribute to lower core inflation over the medium term. The forecast for core inflation is lower at 4.5% in 2019 (down from 4.8%), 4.8% in 2020 (down from 4.9%) and 4.5% in 2021.”


“Based on recent short term indicators and negative growth in mining and manufacturing, GDP is expected to contract in the first quarter of 2019.”

“The SARB now expects GDP growth for 2019 to average 1.0% (down from 1.3% in March). The forecast for 2020 and 2021 was unchanged at 1.8% and 2.0% respectively.”

“The near term growth outlook is limited by the larger than expected slowdown in the first quarter, weak business and consumer confidence as well as growing pressure on household disposable income.”

“Weak business confidence, possible electricity supply constraints and high debt levels in certain state-owned enterprises will continue to limit investment prospects.”

“The escalation of trade tensions could significantly impact global trade with likely negative impacts for South Africa as a small open economy.”


“The rand has benefited from sentiment towards riskier assets but will continue to be affected by idiosyncratic factors such as domestic growth prospects and policy settings.”

“The implied starting point for the rand is 14.40 rand against the U.S. dollar, compared with 14.00 rand at the time of the previous meeting. At these levels, the QPM assesses the rand to be slightly undervalued.”


“The MPC welcomes the continued downward trend in recent inflation outcomes and the moderation in inflation expectations. These are positive developments, as the Committee would like to see inflation remain close to the mid-point of the inflation target range on a more sustained basis.”

“The overall risks to the inflation outlook are assessed to be more or less evenly balanced. While there is scope for further moderation in meat and services prices, oil prices are expected to remain elevated and global food prices appear to have bottomed out. Electricity and water prices, among other administered prices, present additional upside risks.”

“Against this backdrop, the MPC decided to keep the repurchase rate unchanged at 6.75% per year. Three members preferred to keep rates on hold and two members preferred a cut of 25 basis points. The Committee assesses the stance of monetary policy to be broadly accommodative over the forecast period. Any future policy adjustments will continue to be data dependent.”

“The implied path of policy rates generated by the Quarterly Projection Model is for one cut of 25 basis points to the repo rate by the end of first quarter of 2020. The endogenous interest rate path is built into the growth and inflation forecast. As emphasized previously, the implied path remains a broad policy guide which could change in either direction from meeting to meeting in response to new developments and changing risks.” (Reporting by Tanisha Heiberg; Editing by Olivia Kumwenda-Mtambo)

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