Citi economist Gina Schoeman said inflation should rise to a peak of 6.4% in the fourth quarter, descending back within the 3%-6% target range thereafter through 2017, but she said Citi expected a “still relatively cautious hawkish tone within the monetary policy committee and expects the repo rate unchanged through 2017”.
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The central bank left rates steady at 7 percent for a third meeting in a row, in line with expectations, and revised the growth prospects for Africa’s most industrialised country upwards to 0.4 percent from zero percent.
“However, some of the positive factors impacting on the rand may be temporary, and the rand remains vulnerable to both domestic and external shocks”, Mr. Kganyago added.
Food inflation is high because of the prolonged effects of the drought and the weakness in the rand earlier in the year.
Food and non-alcoholic beverages inflation has come in at 11.3 percent for August, year on year.
Since the previous meeting of the MPC in July, the rand traded in the range of R14.73 and R13.28 against the USA dollar and has appreciated by 6.3% against the United States dollar.
“The future trajectory of these prices will be highly dependent on the normalisation of rainfall in the coming months”.
Other factors such as fuel and food prices have also been factored in.
The bank has also announced that it’s now raised its forecast for economic growth for this year.
This was mainly due to the 3.3% economic growth recorded in the second quarter. The latest inflation forecast of the Bank has improved over the first four quarters of the forecast horizon and remains more or less unchanged for rest of the period. The bank lowered its inflation forecast for this year to 6.4% from 6.6% previously. This week South Africa’s statistical agency said the rate in August was 5.9%, down for the second consecutive month.
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“The MPC is of the view that should current forecasts transpire, we may be close to the end of the tightening cycle”, Kganyago said.
