The South African Reserve Bank Governer has announced that the repo rate will remain steady at 6 per cent.
Advertisement
He found ways to shore up forex reserves and the value of rupee and raised the policy rate by 75 basis points (bps) in stages to eight per cent to contain high inflation. “August marks the month when the high base effect from previous year begins to wear out, suggesting a possible upward trajectory for inflation hereon”, says ratings agency Crisil in a report.
The Reserve Bank of India is likely to cut interest rates for the fourth time this year at a policy review next week, as falling energy prices have cooled inflation and the economy has slowed, a Reuters poll showed.
“The MPC therefore has unanimously made a decision to keep the repurchase rate unchanged for now at six percent per annum”, Kganyago said.
Kganyago said that food prices remained of concern as a drought is expected to feed through into consumer prices in coming months.
Partly because of the Fed’s rationale for keeping rates on hold: a significant deterioration in global economic conditions which is exerting downward pressure on an already subdued USA inflation rate.
“The rand exchange rate remains an upside risk to the inflation outlook”, Kganyago said.
The Bank for worldwide Settlements (BIS), the central bankers’ bank, has, for some time now, warned of the dangers and unintended consequences of central banks’ ultra-accommodative policies.
“I think the Reserve Bank is well aware of that”.
The annual inflation rate was 4.6% in August, South Africa’s statistical agency said on September 23, down from an annual rate of 5% in July.
Several government policymakers and business leaders have advocated a cut in interest rates to boost economic growth, but the central bank’s priority is to ensure a sustainable reduction in inflation.
“The domestic economic outlook has deteriorated following the surprise contraction in the second quarter of the year”, he said. “At this sort level, monetary policy is very much in expansionary territory and this is needed to support the economy through a period of low dairy prices, el nino risks, and global financial uncertainty”.
The central bank’s forecast for growth has been revised down by half a percentage point in each year of the forecast to 1.5 percent in 2015, and to 1.6 percent and 2.1 percent in the subsequent two years.
“Consumers are expected to remain constrained against the backdrop of slow employment growth, declining disposable income growth and rising inflation”, Mr. Kganyago said Wednesday. Provisional estimates indicate the domestic economy contracted by close to 2 percent in the first half of 2015.
Advertisement
Factors such as the effectiveness of monetary transmission, or how a change in rates can actually impact growth is working, are usually given short shrift. At the last MPC meeting held in July, the apex bank hiked up the repo rate by 25 basis points.
