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Reserve Bank keeps lending rate unchanged

The South African Reserve Bank (SARB) has kept the repo rate at 5.75 %, amidst a lower  inflation outlook off the back of falling oil prices globally.

oil barrels

Reserve Bank Governor, Lesetja Kganyago said the inflation and growth benefits of a low oil price would be temporary and the SARB’s forecast made provision for a moderate increase in the price of oil over the next two years.

Kganyago said that inflation was now expected to average 3.8% in 2015, compared with a previous forecast of 5.3%.

Figures from Statistics South Africa earlier this month revealed that headline consumer price inflation (CPI) in December fell to 5.3% from peaks of 6.6% in May and June.

Kganyago said it was “too early” to assess if inflation was going to continue its downward trend and that it was still uncomfortably close to the upper end of the target range.

Rand weakness posed an upside risk to the inflation outlook, while the currency was vulnerable to the pace and extent of monetary policy normalisation in the US.

true hotspot

A weak rand would erode the positive benefits of the lower oil prices on inflation, while wage increases in excess of productivity growth remained an upside risk to the inflation outlook.

The SARB expects GDP growth for 2014 to average 1.4 %, with at least one percentage point lost to work stoppages.

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