South Africa Reserve Bank hikes Repo Rate to curtail inflation and strengthen rand …

Johannesburg, South Africa, Capital Markets in Africa — The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) unexpectedly raised the Repurchase Rate by 25 basis points to 6.25 percent, according to the press release issued on Thursday 19 November 2015 and signed by the SARB Governor Lesetja Kganyago.

The MPC also lowered its inflation and growth forecasts for 2015, it also warned of the risk of price pressures spreading because of a weakening rand and warned that that failure to act on inflation risks could worsen the country’s already weak growth.

The  Markets expected that the central bank would leave rates unchanged while waiting to see the effect of a US Fed rate hike widely expected in December. This raised in the lending rates by 25 basis points was the second times after increasing them the same amount in July.

“The MPC had to decide whether to act now or later,” Governor Lesetja Kganyago told reporters in Pretoria, the capital, after predicting the Fed will probably raise its rate next month. “Delaying the adjustment further could lead to second-round effects and require an even stronger monetary policy response in the future, with more severe consequences for short-term growth.”

The bank expects inflation to average 4.6 percent in 2015, compared with a previous forecast of 4.7 percent. Even though inflation (year-on-year measured by the consumer price index (CPI) for all urban areas) hastened to 4.7 percent in October against 4.6 percent in September and August, it remains inside the bank’s target range. However, the SARB expects consumer prices breaching the bank’s upper target of 6 percent for two consecutive quarters in 2016 as an ongoing drought pushes up food prices.

In the same vein, the economy is struggling in the face of falling metal prices, a power shortage and drought, with gross domestic product contracting an annualized 1.3 percent in the second quarter. The Reserve Bank lowered its forecast for GDP growth for 2015 and 2016, to 1.4 percent and 1.5 percent respectively.

 Members of the bank’s six-member policy committee voted 4 to 2 to raise rates. Kganyago said the committee did not consider a 50-basis-point hike.

To read MPC’s statement click MONETARY POLICY COMMITTEE MEETING Release Statement