South African reserve bank holds repo rate, warns of inflation risk

South Africa's central bank kept its benchmark repo rate unchanged at 7 percent on Tuesday, in line with expectations, saying the near-term outlook of inflation has deteriorated while the domestic growth outlook remained constrained.

Jacob Zuma

Governor Lesetja Kganyago said the near-term inflation outlook had worsened, and the growth outlook remained weak, but reiterated that the Monetary Policy Committee still held the view that it may be near the end of the hiking cycle.
"However should second round effects emerge that undermine the longer term inflation outlook there may be a reassessment of this view," Kganyago told a news conference after the committee's first meeting for the year.
"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 slightly against the dollar to 1.1 percent, in response to the announcement that the repo rate had been left steady at 7 percent - a level is has been at since March, 2016.
All 27 economists polled by Reuters expected the repo rate to be kept on hold.
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.
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