MONETARY POLICY DECISION
Reserve Bank cites upside inflation risk as it holds rates
The Reserve Bank will remain vigilant to ensure that inflation remains “well within the target range”, governor Lesetja Kganyago said on Thursday as the Bank held interest rates at 6.5%, citing upside risks to the inflation outlook from dollar strength and the surge in oil prices.
The Bank’s monetary policy committee, whose decision to cut rates in March was favoured by only four of the seven members, was unanimous this time.
The Bank expects inflation to remain within the 3% to 6% target range over the next three years, peaking at 5.5% in the first quarter of 2019. The rand, which declined 6% since the committee’s March meeting, gained on Thursday on news of the committee’s decision.
Kganyago again emphasised that the committee would prefer inflation expectations to be closer to 4.5%, saying economic agents would lower expectations if the outcome of the monetary policy stance was an inflation rate close to 4.5%.
This suggests the committee is serious about targeting the mid-point, rather than simply trying to keep the inflation rate below 6% as it has often had to do in the past.
It said its quarterly projection model indicated a 25-basis point increase in interest rates in the final quarter of 2018 and another in 2019.
Standard Chartered economist Razia Khan said the case for an early rate hike was building.