“The MPC therefore has unanimously chose to keep the repurchase rate unchanged for now at six percent per annum”, Kganyago said.
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“There is no monetary policy in the USA right now except to keep interest rates at zero and balance sheets large and other central banks are going along for the ride”.
“There are a number of upside risks to the inflation outlook, the primary one being the exchange rate which has already depreciated significantly against the advanced economy currencies in response to global developments, and is still likely to react further to the commencement of USA monetary policy tightening”.
The bond market’s inflation outlook for the next 10 years touched the lowest since May 2009, raising questions about the Federal Reserve’s ability to increase interest rates this year.
Kganyago said that the contraction in the current account – which narrowed to 3.1% of GDP in the second quarter – was a “further uncertainty”, as stronger exports would face headwinds from a slowing global economy, electricity supply constraints and declining tourism receipts.
He said it was possible that interest rates could return to pre-GFC levels, or higher, within two to five years.
Central bank Governor Erdem Basci’s decision to stick with the accommodative monetary policy comes as political uncertainty and a two-front war against Islamic State and Kurdish insurgents compound Turkey’s economic woes. The figure was below market expectation of 4.7%.
Recent research by Robert Johnson, President and CEO of The American College of Financial Services in Bryn Mawr, Pa, , found stocks underperform as interest rates rise.
Inflationary pressure “is expected to come from drought-induced increases”.
The difference between the market’s inflation forecast and the Fed’s outlook for rising costs means “to some extent, the Fed has to dismiss this, because if they believed that, they’d be at a much different part of their cycle”, Kohli said. Of the world’s developed regions, growth in the euro area picked up slightly in the second quarter of 2015.
Although SA would suffer weak economic growth, a recession was unlikely, Mr Kganyago said.
At the last MPC meeting in July, the central bank hiked up the repo rate by 25 basis points.
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Despite the limited effectiveness of monetary policy and the significant volatility it is now engendering, investors continue to hang on central bankers’ every word.
