SARB hikes key interest rate by 25 bps to 6.75 pct, assesses monetary policy stance to be accommodative

The South African Reserve Bank today decided to hike the repurchase rate by 25 basis points to 6.75 percent. Three members had voted for a hike and three members preferred an unchanged stance. The committee continues to assess the monetary policy stance to be accommodative.

Monetary policy actions would continue to focus on anchoring inflation expectations near the mid-point of the inflation target range in the interest of balanced and sustainable growth. The MPC, in its statement, said that any future policy adjustments would be data dependent. The suggested path of policy rates generated by the Quarterly Projection Model is for four rate hikes of 25 basis points, reaching 7.5 percent by end of 2020.

Since the previous meeting of the Monetary Policy Committee, the near-term inflation outlook has rebounded, however, the longer term risks to the inflation outlook remain elevated. The softer exchange rate and the effect of increased oil prices have continued to increasing inflation since March 2018. Meanwhile, the domestic growth continues to be subdued.

The MPC expects the headline inflation to average 4.7 percent this year, before rising to 5.5 percent next year and moderating to an unchanged 5.4 percent in 2020. The consumer price inflation is now likely to peak around 5.6 percent in the third quarter of 2019. The core rate is likely to reach 4.3 percent in 2018 and 5.3 percent next year and 5.5 percent in 2020.

Meanwhile, the domestic growth outlook continues to be challenging. Recent monthly data on economic performance in key sectors implies a more moderate rebound in growth in the third quarter than expected in September. The SARB expects the economic growth to average 0.6 percent this year. The projection for 2019 and 2020 is unchanged at 1.9 percent and 2 percent respectively.

The Monetary Policy Committee, in its statement, said that the MPC assesses the risks to the growth forecast to be “moderately on the downside. As previously highlighted the Committee remains of the view that current challenges facing the economy are primarily structural in nature and cannot be solved by monetary policy alone”.