Reserve Bank raises rates 25 basis points to 3.75%

Three members of the Monetary Policy Committee (MPC) preferred an increase, with two preferring rates to remain steady, Reserve Bank Governor Lesetja Kganyago said during a briefing on Thursday.

While the MPC expects inflation to stay close to the mid-point over the forecast period, inflation risks have increased, he added. Risks to the short-term inflation outlook are expected to be on the upside.

“Global producer price and food price inflation continued to surprise higher in recent months and could do so again.”

Additionally, oil prices have increased sharply, with current prices well above the bank’s forecasted levels for this year.

“Given the moderate medium- and long-term inflation projections set out above, a weaker currency, higher domestic import tariffs, and escalating wage demands present additional upside risks to the inflation forecast,” Kganyago said.

Growth outlook

“While the domestic economy grew strongly in the first half of 2021, the second half of the year is expected to show mixed results,” Kganyago said.

The bank revised the growth outlook from 5.3% to 5.2%. The revision is due to a larger negative effect on output than was previously estimated from the July unrest and other factors.

Third-quarter growth is expected to be -2.5%, compared to -1.2% previously.

GDP for the fourth quarter is expected to be 2.6%, compared to 1.6% previously.

Overall GDP for 2021 still reflects a “healthy bounce-back” from the economic effects of the pandemic.

“The July unrest, the pandemic and ongoing energy supply constraints are likely to have lasting effects on investor confidence and job creation, impeding recovery in labour-intensive sectors hardest hit by the lockdowns,” said Kganyago.

Load shedding will also continue to constrain investment. “The faster vaccine rollout presents some upside risk to the growth outlook,” he said. Risks to medium-term growth, however, are expected to be on the downside.

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