Thursday, 20 July 2017 22:00

Reserve bank reduces repo rate by 25 basis points to 6.75%

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The Reserve Bank’s Monetary Policy Committee (MPC) on Thursday reduced the repo rate by 25 basis points to 6.75%.

Briefing reporters following the MPC’s meeting, Reserve Bank Governor Lesetja Kganyago said the bank “will not hesitate to revise the move if the need arises”.

“Underlying demand in the economy is extremely weak and the MPC is concerned about the deterioration in the growth outlook over the forecast period. This decline is broad-based.

“It is unclear where the drivers of accelerated growth will come from in the absence of credible structural policy initiatives that will reduce uncertainty and increase business and consumer confidence. The MPC assesses the risks to the revised growth forecast to be slightly on the downside,” said Kganyago.

The central bank said it remains concerned about the country’s inflation outlook, saying that inflation expectations remain sticky at the upper end of its 6% benchmark.

Headline consumer inflation released by Statistics South Africa (Stats SA) on Wednesday showed that inflation eased to 5.1% year-on-year in June, from 5.4% in May to the surprise of economists, who had expected the MPC to keep the repo rate unchanged at 7%.

The MPC also said that while the rand had more or less remained unchanged since the last MPC meeting in May, it was volatile. Kganyago said the currency remains vulnerable to global shocks and a possible credit ratings downgrade.

A further upside risk relates to the possible supply side shock of a large electricity tariff increase from July 2018. Eskom has approached the National Energy Regulator of SA (Nersa) for an increase of around 20%, but the current forecast assumes an increase of 8%. This assumption will be adjusted in line with any new determinations made by Nersa.

The bank revised downwards the growth outlook from 1% to 0.5% in 2017. It said a moderate petrol price hike is likely in August following a decrease of between 69 and 68 cents in July.

The repo rate was raised to 7% at the MPC’s March 2016 meeting.

Kganyago said four members of the MPC preferred a reduction, while two members preferred an unchanged stance. 

Last modified on Friday, 21 July 2017 09:08

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