There were no surprises today when the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) delivered its first monetary policy statement for the year.
Reserve Bank Governor Lesetja Kganyago announced that the repo rate remains unchanged at 6.75 percent.
The bank lending rate remains at 10.25 percent.
Kganyago said the Reserve Bank expected better inflation figures in 2018.
Few central bank watchers were expecting the MPC to adjust rates this time around with two key risk events still on the horizon. As was widely expected, the SARB detailed an improved inflation outlook on the back of the stronger rand and the lower than expected electricity price tariff awarded to Eskom by NERSA.
The low point in the current inflation cycle is still expected in the first quarter of the year with marginally higher inflation in the ensuing years (but contained within the 3-6% target range). Despite this more positive outlook on the course of inflation over the forecast period, the SARB was cognisant of the risk posed to inflation, via the currency, from both the Moody’s sovereign credit rating announcement next month as well as the National Budget to be delivered on 21 February.
Both of these events have the potential to move the currency markedly (both up and down) and any big swings in the currency would necessitate further adjustments to the inflation outlook. With these events imminent, the SARB believed it prudent to maintain the interest rate status quo but, like any good central bank, it continued to highlight the risks to the positive inflation outlook.