January 16, 2020 / 1:22 PM / 11 days ago

HIGHLIGHTS-South African central bank comments on rate decision

PRETORIA, Jan 16 (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.

INFLATION

“The overall risks to the inflation outlook are assessed to be balanced. Demand side pressures remain subdued and house rental prices are expected to increase at only moderate rates. Global inflation should also remain low. Food price inflation has continued to surprise to the downside, although rising imported food prices create some caution about the future price trajectory. While the currency has strengthened relative to the November meeting, the risk remains that domestic shocks generate more capital flow volatility and put pressure on the exchange rate and inflation. Other upside risks to the inflation outlook remain, including from fuel, electricity and water prices, and from nominal wage growth.”

GROWTH

“The GDP growth outcome for the third quarter confirmed that the economy remains weak and vulnerable to idiosyncratic shocks and poor sectoral performances. While growth in the fourth quarter is expected to have picked up, electricity supply constraints will likely keep economic activity muted in the near term.”

“The MPC assesses the risks to the growth forecast to be to the downside. Escalation in global trade tensions, geo-political risks, further domestic supply constraints and/or sustained higher oil prices could generate headwinds to growth.”

“Implementation of prudent macroeconomic policies and structural reforms that lower costs and increase investment, potential growth and job creation, remains urgent.”

RAND

“Since the November MPC, the rand has appreciated by 2.6% against the U.S. dollar, and by 1.8% against the euro. The implied starting point for the rand is R14.60 against the U.S. dollar, compared with R14.94 at the time of the previous meeting. While the rand has benefited from improvements in global sentiment, high long-term bond yields reflect concerns about domestic growth prospects and fiscal risks.”

DECISION

“The MPC welcomes the lower inflation outcomes and continued moderation in inflation expectations. While the Committee would like to see inflation expectations anchored closer to the mid point of the inflation target range on a sustained basis, the lower inflation forecast and improved risk profile opens some space to provide further policy accommodation to the economy.”

“Against this backdrop, the MPC decided to reduce the repurchase rate by 25 basis points. The decision was unanimous. Monetary policy actions will continue to focus on anchoring inflation expectations near the mid-point of the inflation target range in the interest of balanced and sustainable growth. In this persistently uncertain environment, future policy decisions will continue to be highly data-dependent, sensitive to the balance of risks to the outlook, and will seek to look-through temporary price shocks.” (Reporting by Olivia Kumwenda-Mtambo and Emma Rumney Editing by Mark Heinrich)

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