South Africa’s central bank raised the key interest rate on Thursday for the first time in a year, citing rising inflation risks.
The Monetary Policy Committee of the South African Reserve Bank raised the repurchase rate by 25 basis points to 6 percent, in line with expectations. Four members sought a quarter-point hike, while two rate-setters favored an unchanged stance, Governor Lesetja Kganyago said in a statement.
The latest increase in interest rates was the first since July last year. Strikes and severe power shortages left little room to raise rates, thereafter.
“We have to be mindful of the risk of second-round effects on inflation, and the committee is concerned that failure to act against these heightened pressures and risks will cause inflation expectations to become entrenched at higher levels,” Kganyago said.
“The MPC has therefore decided to continue on its path of gradual policy normalization.”
The bank expects inflation to breach the upper end of the target range for two quarters. In June, inflation accelerated less than expected, which the bank views as a temporary respite. “The persistence of forecast inflation at elevated levels and the continued upside risks to the outlook remain a concern to the MPC,” Kganyago said.
The bank raised its inflation forecast for this year to 5 percent from 4.9 percent. The projections for both 2016 and 2017 were left unchanged at 6.1 percent and 5.7 percent, respectively.
The SARB cut the growth forecast for this year to 2 percent and the outlook for next year to 2.1 percent. Growth projection for 2017 was lowered to 2.6 percent. The risks to growth are still assessed to be moderately on the downside, the bank said.
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