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South African central bank comments on rate decision

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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 report.

“Higher food, fuel and electricity prices are expected to lift inflation over the medium term. However, it is expected to be offset by lower core inflation as unit labour costs and inflation expectations moderate.”

“Expectations implicit in the break-even inflation rates remain sensitive to exchange rate movements.”

“Although global growth conditions remain benign, the pace of growth is slower than previously anticipated. Business confidence has softened amidst increasing concerns about weaker trade and production, on-going trade tensions and tariff hikes as well as country specific factors.”

“A further escalation of trade tensions, rising geo-political risks, including the possibility of a no-deal Brexit and renewed tightening of financial conditions could further weaken growth in an environment with limited policy space.”

“The SARB now expects GDP growth for 2019 to average 1.3 percent (down from 1.7 percent in January). The forecast for 2020 is 1.8 percent (down from 2.0 percent), rising to 2.0 percent for 2021 (down 2.2 percent). This results from bigger than expected slowdown in the global economy, declines in business confidence, potentially supply side disruption from load shedding and growing pressure on household income.”

“The MPC assesses the risks to the growth forecast to continue to be on the downside. Electricity supply constraints and weak business confidence will likely limit near term production and investment prospects. The Committee remains of the view that current challenges facing the economy are primarily structural in nature. Given current economic vulnerabilities, prudent macroeconomic policies combined with structural reforms that raise potential growth and lower the cost structure of the economy, have become even more urgent.”

“The rand has been affected by idiosyncratic factors such as domestic growth prospects, political developments and policy settings.”

“The MPC takes note of the recent inflation outcomes and welcomes the moderation in inflation expectations.”

“The overall risks to the inflation outlook are assessed to be more or less evenly balanced. Key upside risks are rising administered prices including electricity and water tariffs, rising domestic food prices in the outer years and higher international oil prices. Downside risks include lower global inflation and an extended period of monetary accommodation in advanced economies.”

“Against this backdrop, the MPC unanimously decided to keep the repurchase rate unchanged at 6.75 percent per year. The Committee continues to assess the stance of monetary policy to be accommodative.”

 

 

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