The South African Reserve Bank starts 2019 on a more dovish note

SOUTH AFRICA - Report 17 Jan 2019 by Iraj Abedian

Today the South African Reserve Bank’s Monetary Policy Committee completed its first of six meetings to be held in 2019 to decide the country’s interest rate path. In line with market expectations, the MPC decided to leave the benchmark interest rate unchanged at 6.75%, hence the prime rate also remaining at 10.25%. This was a unanimous decision.

The Reserve Bank had increased the repo rate by 25 basis points following the MPC’s November 2018 meeting, marking the first increase since March 2016. Despite the increase, the Bank reiterated that the MPC continues to assess the stance of monetary policy to be accommodative.

The latest available inflation figures are for November 2018 and they showed that consumer inflation had increased marginally, from 5.1% y/y in October to 5.2%. Nevertheless, the Reserve Bank stated that its near-term inflation forecast has improved significantly since the MPC’s previous meeting, with average headline inflation now expected at 4.8% for 2019, down from 5.5%. Headline inflation is further expected to peak at around 5.6% during the first quarter of 2020. Perhaps also the result of the Reserve Bank’s previous interest rate hike, the average inflation expectations (coming from the survey by the Bureau for Economic Research (BER) in Q4 2018) for both 2019 and 2020 have declined from 5.6% to 5.4%.

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