By Prinesha Naidoo, Amogelang Mbatha and Adelaide Changole
(Bloomberg) – The South African Reserve Bank held its benchmark interest rate even as inflation slowed to an almost nine-year low, and signalled that it may only start easing again in the second half of next year.
The rand firmed almost 10c to R14.68 to the US dollar on the move.
The Monetary Policy Committee voted to keep the repurchase rate at 6.5%, Governor Lesetja Kganyago told reporters on Thursday in Pretoria. Three members of the five-person panel opted to maintain the rate while the rest preferred a 25 basis-point cut. The decision was in line with the forecasts of all but four of the 16 economists in a Bloomberg survey.
Key insights
- While inflation slowed to 3.7% in October and has been inside the central bank’s target range since April 2017, Kganyago said the MPC wants inflation expectations anchored at the 4.5% midpoint of the band.
- The central bank said in October policy uncertainty that increases South Africa’s sovereign-risk premium is limiting its ability to cut rates. “If this country is to bring down the long-term cost of capital, we have got to bring down the country risk premium,” Kganyago said on Thursday.
- The central bank’s quarterly projection model now forecasts a repurchase rate of 6.3% by the end of 2020. Kganyago said this prices in a 25 basis-point cut in the third quarter, but that could “change in either direction”.
- The Reserve Bank cut its 2019 economic growth forecast to 0.5% from 0.6% and also reduced its projections for 2020 and 2021.
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