The Reserve Bank on Thursday kept the repo rate unchanged at 6.75% per annum, Reserve Bank Governor Lesetja Kganyago said.
“The Monetary Policy Committee (MPC) has decided that it would be prudent to maintain the current stance of monetary policy at this stage. Accordingly, the repurchase rate remains unchanged at 6.75% per annum,” he said.
The decision made by the six members of the committee was unanimous.
Nedbank economists had predicted that the bank would keep the repo rate unchanged owing to policy and political uncertainty in the country and their likely impact on the currency.
The governor said international oil-prices have re-emerged as an upside risk to domestic and global inflation.
The central bank further added that the combination of a weaker exchange rate and higher product prices has resulted in a cumulative increase in domestic petrol prices by R1 per litre since September.
The current under-recovery suggests a further increase in the region of 70 cents per litre is likely in December.
Meanwhile, inflation outcomes show that headline inflation remains close to the midpoint of the target range, while core inflation has reached its lowest level in five years. The Consumer Price Index (CPI) eased to 4.8% year-on-year in October.
However, the forecasts suggest that both measures are close to their lower turning points, and an upward trajectory is expected to begin early next year.
Kganyago said although inflation is expected to remain within the target range over the forecast period, the risks to the outlook are assessed to be on the upside at a time when imminent key event risks contribute to an environment of particularly elevated uncertainty.
The bank said since its last meeting the deterioration in the fiscal stance has increased the risk of a sovereign ratings downgrade of domestic currency bonds to sub-investment grade.
This, it said, could precipitate a significant sell-off of domestic government bonds by non-residents, with implications for the exchange rate and long-term bond yields.
“Should this occur, there is the possibility of a short- term overreaction, and a possible partial recovery later on. The precise path and duration is highly uncertain,” said the Governor.
This as credit rating agencies Moody’s Investor Services and Standard and Poor’s are expected to deliver credit rating updates tomorrow.
When coming to the domestic economic growth outlook, the MPC said this remains subdued but positive.
“Both consumer and business confidence remain low and are also likely to be affected by political developments in December.” – SAnews.gov.za