South Africa’s central bank lifted its interest rates in January for a second consecutive policy session, citing deterioration in the inflation outlook.
The Monetary Policy Committee of the South African Reserve Bank on Thursday raised its repurchase rate by 50 basis points to 6.75 percent. The decision was in line with economists’ expectations.
Previously, the key interest rate was hiked by 25 basis points in November.
Three rate-setters sought the half-point increase, two preferred a 25 basis points hike, while one member voted for no change, the bank said in a statement.
“The MPC still views the stance of monetary policy to be accommodative,” SARB Governor Lesetja Kganyago said.
“Despite the rate increase, the real repurchase rate remains low given the higher expected inflation over the period.”
The central bank blamed the rand depreciation and higher food prices for the significant deterioration in the inflation outlook. Domestic growth has weakened further, the SARB said.
Headline inflation accelerated to 5.2 percent in December from 4.8 percent in the previous month. Core inflation, which excludes food, fuel and electricity, rose slightly to 5.2 percent from 5.1 percent.
The SARB sharply raised its inflation forecast for this year to 6.8 percent from 6 percent and the outlook for 2017 to 7 percent from 5.8 percent.
A key risk to the inflation outlook is not only the possibility of further depreciation of rand, but also the extent to which the there is a change in the pass-through dynamics, which have been relatively muted in recent years, the bank said.
Food prices remain a significant risk to the inflation outlook, the SARB added.
Growth forecast for this year was lowered to 0.9 percent from 1.5 percent and the projection for next year was cut to 1.6 percent from 2.1 percent. The risks to the growth outlook are assessed to be
on the downside, the bank said.
The bank estimated 2015 inflation to be 4.6 percent and average growth to be around 1.3 percent.
The material has been provided by InstaForex Company – www.instaforex.com