South Africa MPC May Adjust Policy if Price Risks Materialize

JOHANNESBURG (Capital Markets in Africa) – The South African Reserve Bank will adjust monetary policy to keep inflation expectations anchored close to 4.5 percent if price risks materialize, Deputy Governor Daniel Mminele said.

The rand is likely to continue to be vulnerable due to the change in sentiment toward emerging markets and rising trade tensions, he said. That and uncertainty around the speed at which electricity prices will increase are upside risks to inflation, Mminele said in a copy of a speech posted on the central bank’s website on Wednesday.

The Monetary Policy Committee wants to “ensure that inflation expectations are anchored towards the midpoint of the target range” of 3 percent to 6 percent, he said. “The MPC will not hesitate to act when deemed appropriate.”

The panel left the benchmark rate unchanged at a two-year low last month, as it warned of upside risks to inflation from the weaker rand and higher oil prices. The central bank increased its price-growth forecasts for the next two years and cut the 2018 economic growth to 1.2 percent, below last year’s rate of 1.3 percent. Africa’s most-industrialized economy contracted the most in nine years in the first quarter.

Inflation quickened to 4.6 percent in June after reaching a seven-year low of 3.8 percent in March.

The central bank won’t overreact to initial price pressure and will be guided by wider effects on costs “which could contribute to inflation moving too far away from the mid-point of the range, or even exceeding the target range, on a sustained basis,” Mminele said.

Source: Bloomberg Business News