On Thursday, and as expected, the Reserve Bank’s monetary policy committee (MPC) kept interest rates unchanged at 6.75%. All 22 economists polled by Bloomberg expected the repo rate to remain unchanged despite lower inflation and a weaker economic outlook — with expectations that the economy contracted in the first quarter of the year. The Bank adopted a more dovish stance in their statement, indicating that there may be room for interest rate cuts this year. “Average inflation expectations have been declining slowly since the end of 2017,” Bank governor Lesetja Kganyago said.

Inflation is expected to moderate this year and the Bank has made it clear it would prefer inflation anchored at the mid-point of its 3%-6% inflation target range. In April, inflation was below the mid-point of the target range at 4.4%.The Bank now expects inflation to average 4.5% this year, down from March’s projection of 4.8%, 5.1% in 2019 from 5.3%, and 4.6% in 2021 from 4.7%.

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