The SA Reserve Bank (SARB) has raised the repo rate by 50 basis points to 6.75 percent, due to concerns about inflation and the local currency.
SARB governor Lesetja Kganyago told reporters that since the previous meeting of the Monetary Policy Committee, the inflation outlook had deteriorated significantly, mainly due to exchange rate and food price developments.
“The rand has depreciated considerably in response to domestic and external developments, while the impact of the worsening drought on food prices is becoming increasingly evident.
“The outlook is complicated by the fact that the domestic growth outlook has weakened further. The global backdrop has also become more challenging particularly for emerging markets, and downside risks to the sustainability of the recovery in the advanced economies have increased.”
He added that the latest inflation forecast of the SARB showed a marked deterioration.
“Having averaged 4,6 percent in 2015, inflation is now expected to average 6,8 percent in 2016 and 7,0 per cent in 2017. This compares with the previous forecast of 6,0 percent and 5,8 percent for these years.
“Inflation is still expected to breach the upper end of the target in the first quarter of 2016, but is now expected to remain outside the target for the entire forecast period. A peak of 7,8 percent is expected in the fourth quarter of 2016 and the first quarter of 2017, followed by a moderation to 6,2 percent in the final quarter of that year (5,7 per cent previously).”