January 24 2017 – THE South African Reserve Bank kept lending rates at 7 percent on Tuesday (today), saying the near-term outlook for inflation had deteriorated, while domestic growth remained constrained, while still facing a possible downgrade to junk status.
SA still faces possible credit downgrades to junk, which the Treasury has warned could push borrowing costs higher, sink the currency and hurt already ailing growth.
All three major ratings agencies – S&P, Fitch and Moody’s – have warned that slow growth and political tensions could trigger downgrades on its credit ratings.
Political turmoil has also rattled financial markets, after an anti-graft watchdog last year alleged influence-peddling involving President Jacob Zuma, who has denied any wrongdoing.
S&P said on Tuesday political tensions could derail the economy.
Governor Lesetja Kganyago said that despite the outlook the central bank’s Monetary Policy Committee still held the view that it may be near the end of its hiking cycle.
Kganyago said inflation is expected to average 6.2 percent in 2017, higher than a previous forecast of 5.8 percent.
The bank targets inflation of between 3-6 percent but a severe drought last year, low economic growth and a weakening currency have kept consumer prices elevated.
The bank forecast the economy to grow 1.1 percent in 2017 compared with a projection of 1.2 percent in November. The bank has projected growth at 0.4 percent for 2016.
“That we are reaching the end of the tightening cycle, does not mean that … cutting is around the corner,” Kganyago told a news conference after the committee’s first meeting of 2017.
“Furthermore, the MPC remains concerned that the longer term inflation trajectory continues to be uncomfortable close to upper end of the target range.”
The rand extended gains to 1.24 percent against the dollar in response to news that the repo rate had been left steady at 7 percent – the level is has been at since March, 2016.
All 27 economists polled by Reuters expected the repo rate to be kept on hold.
Capital Economics Senior Emerging Markets Economist William Jackson wrote in a note that inflation would remain above target in the first quarter but fall by the middle of the year.
“We therefore don’t expect policy to be tightened in the near term and expect talk to turn to loosening by the end of this year,” Jackson said. – – Reuters visit www.zimsinsa.com