South African central bank holds repo rate at 6.5 percent

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South African Reserve Bank Governor Lesetja Kganyago attends IMFC press conference during the IMF/World Bank spring meeting in Washington, U.S., April 21, 2018. REUTERS/Yuri Gripas

PRETORIA  – South Africa’s central bank kept its benchmark repo rate on hold in a unanimous decision by the Monetary Policy Committee (MPC) members on Thursday, saying risks to the consumer price inflation outlook have tilted to the upside.

South African Reserve Bank Governor Lesetja Kganyago attends IMFC press conference during the IMF/World Bank spring meeting in Washington, U.S., April 21, 2018. REUTERS/Yuri Gripas

While the rate of increase in consumer prices is not expected to breach the top-end of the bank’s 3-6 percent target during the forecast horizon, it said rising oil prices and possible higher electricity tariffs posed risks the outlook.

All 25 economists surveyed by Reuters had predicted the repo rate would stay on hold.

“In contrast with the previous meeting, the MPC assesses the risks to the inflation forecast to have moved to the upside. This change is mainly due to global developments,” the central bank Governor Lesetja Kganyago told a news conference.

“In light of the change in the balance of risks to the inflation outlook, the MPC unanimously decided to keep the repurchase rate unchanged at 6.5 percent per annum.”

The central bank said consumer price inflation is expected to average 4.9 percent this year, rising to 5.2 percent in 2020.

In February the National Treasury announced a VAT increase for the first time in two decades, which could hurt consumer demand, to cap ballooning debt and close a large revenue shortfall.

The rand currency, which have been under pressure in the past month from a strong dollar, held on to session gains after the rates decision, trading 0.4 percent firmer at 12.4100 per dollar as of 1339 GMT.

“In the near term the rand is expected to remain volatile,” Kganyago said.

Reporting by Mfuneko Toyana, Alexander Winning and Patricia Aruo; Writing by Olivia Kumwenda-Mtambo; Editing by James Macharia

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