November 19, 2015 / 1:22 PM / 4 years ago

HIGHLIGHTS-South African central bank comments on interest rates

JOHANNESBURG, Nov 19 (Reuters) - Below are comments from South African Reserve Bank Governor Lesetja Kganyago at his latest decision on interest rates.


The changes in the forecast are due to a lower starting point for the forecast, lower international oil price assumptions, and an adjustment to fees for higher education which are more or less offset by a more depreciated starting point for the real effective exchange rate.

Although core inflation has remained steady and inflation expectations to date have been relatively anchored, they remain at uncomfortably elevated levels.

Monetary policy actions will continue to focus on anchoring inflation within the target range while remaining sensitive, to the extent possible, to the fragile state of the economy


In the US, inflation and labour market dynamics, as well as Fed communication, suggest that in the absence of any major surprises or shocks, an increase in the policy rate can be expected in December.


The domestic economic growth prospects remain subdued amid weak business confidence. But a further contraction in the fourth quarter is not expected.

The Bank’s forecast for GDP growth has been revised down marginally for 2015 and 2016 to 1.4 percent and 1.5 percent.

Complicating the decision was the deteriorating economic growth outlook. Although the change to the growth forecast was marginal, the risks to the outlook, which were more or less balanced at the previous meeting, are now assessed to be on the downside.


The increased intensity of the drought which has led to downward revisions of the domestic maize crop estimate, as well as incipient pressures evident in both the PPI and CPI, suggest that an acceleration in food price inflation is likely, adding to the upside risk to the inflation outlook.


The rand exchange rate has been particularly volatile, compared to its peers, as domestic factors contributed to the currency.

As before, the extent to which Fed tightening has been priced into the exchange rate remains uncertain. Nevertheless, a high degree of volatility and overshooting of the exchange rate may be expected in the lead-up to, and in the immediate aftermath of the start of the US interest rate cycle.


In the absence of demand pressures, the MPC had to decide whether to act now or later.

Against this difficult backdrop, the MPC decided to increase the repurchase rate by 25 basis points to 6,25 percent per annum effective from 20 November 2015. Despite the increase, the MPC still views the monetary policy stance to be accommodative. (Reporting by Johannesburg Newsroom; Editing by James Macharia)

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