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South African Central Bank Wants Clearer Disinflation Trend before Cutting Rates

South African Central Bank Wants Clearer Disinflation Trend before Cutting Rates

South Africa’s central bank maintained its key lending rate as economists expected on Thursday, saying it did not yet see a clear disinflation trend that would justify cutting rates.

It was the fourth meeting in a row that the bank left its repo rate (ZAREPO=ECI), opens new tab on hold at 8.25%.
All 20 economists polled by Reuters had forecast that the rate would be left unchanged.

Thursday’s decision was unanimous, South African Reserve Bank (SARB) Governor Lesetja Kganyago told a news conference, introducing a new member of the Monetary Policy Committee, David Fowkes.

Inflation fell for a second month to 5.1% year on year in December from 5.5% in November, remaining within the central bank’s target range of 3%-6%.

The bank said previously that it wanted to see inflation sustainably around the midpoint of its target range, which is 4.5%, before considering rate cuts.

The central bank said on Thursday that the return to its inflation target had been slow. “There isn’t a discernible trend that shows that inflation is declining towards (the midpoint of) our target,” Kganyago told reporters.

Growth and inflation forecasts were little changed since the November rate meeting, with the bank flagging on Thursday that electricity, port, and rail constraints continued to pose serious risks to the economy.

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Another potential source of uncertainty is this year’s national election, which will be the seventh since the dawn of democracy at the end of apartheid.
Political analysts say the governing African National Congress could lose its parliamentary majority for the first time since 1994 and have to enter into a coalition with other parties.

Economists from Alexforbes, Bank of America and HSBC all expect the SARB to begin cutting rates in July and ease policy gradually with between 75 basis points to 125 basis points of cuts this year. David Omojomolo at Capital Economics expects rates to be cut by 50 basis points this year.

Reuters

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