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Sluggish growth hits South Africa’s rand, stocks firm
The decision on the repo rate follows on the Monetary Policy Committee’s (MPC) three-day meeting that began on Monday.
“The economy has started to lose some momentum; meanwhile the downside risks to the inflationary outlook have increased”, Mariann Trippon, a Budapest-based economist at Intesa Sanpaolo’s CIB Bank unit, said in an emailed report before the decision.
South Africa’s Reserve Bank kept its benchmark repo rate unchanged on Wednesday, saying a weakening economy meant its plan to increase borrowing costs to tackle high inflation would have to be deferred.
Although SA would suffer weak economic growth, a recession was unlikely, Mr Kganyago said.
“The latest inflation print is a further reason why the Reserve Bank should not raise interest rates this afternoon”.
“The MPC is also concerned about domestic growth prospects, with the economy contracting in the second quarter”. Core inflation measured 5.3%, down from 5.4% in July.
“Consumers are expected to remain constrained against the backdrop of slow employment growth, declining disposable income growth and rising inflation”, Mr. Kganyago said Wednesday.
The domestic economic outlook has deteriorated following the surprise contraction of 1.3% in the second quarter of the year.
While to date the actual slowdown in China has been relatively moderate, a hard landing could have a severe impact on global markets, and on commodity prices in particular, he said.
The rand, which has fallen as investors dump emerging markets in anticipation of a hike in US rates, remained an upside risk to the inflation outlook. The decision last week by the U.S. Federal Reserve to delay monetary-policy tightening gave African central banks some reprieve as well.
“We still expect inflation to accelerate over the coming months”, John Ashbourne, Africa economist at Capital Economics, said in a note Wednesday. Inflation is now expected to average 4.7 percent in 2015, from 5.0 percent previously, and then to breach the upper end of the target range in the first quarter of 2016, with a peak of 6.7 percent (previously 6.9 percent). The rand will probably react further once the Fed begins raising interest rates, he said. The rate decision came in line with expectations.