SARB leaves repo rate at 7%

The South African Reserve Bank's Monetary Policy Committee (MPC) has kept the repo rate unchanged at 7%.The decision was announced by Reserve Bank Governor Lesetja Kganyago last week Thursday.The prime lending rate will also remain at 10.50%."Four members preferred a hold, while two favoured an increase of 25 basis points."The committee agreed that the outlook is uncertain, and with the rate increase at our previous meeting, the policy stance is appropriate for now, with rates somewhat restrictive," Kganyago said.Turning to growth, the governor said that while first-quarter growth was "stronger than expected", the MPC expects sluggish growth through the second and third quarters."Consumer confidence has fallen sharply, and business confidence has also weakened. Sectoral data show generally lower activity since the start of the war. Prices for our export commodities have also fallen, although the terms of trade have improved, given lower prices for imports."We started this year with good momentum, but households have suffered from higher fuel prices, while uncertainty has weighed on investment. It is also increasingly clear that municipal dysfunction has become a binding constraint on growth," he said.Kganyago added, however, that domestic reforms could propel the economy towards a "rising growth trend" as global conditions stabilise."Our baseline forecast is that the economy starts to recover in the second half of this year, as the shock fades. But the outlook is uncertain. We see downside risks to growth," he said.Stabilising inflationOn Wednesday, Statistics South Africa revealed that the inflation rate reached its highest reading since June 2024, rising to 5% in June.Kganyago said this was driven by higher fuel costs resulting from the war in the Middle East."Petrol and diesel prices eased this month, but global prices have now risen again. We expect headline inflation to stay above 4% until early next year."Apart from fuel, goods prices have remained relatively contained. The exchange rate has been resilient, with the rand close to where it started the year against the dollar and stronger against the euro. This has helped contain import prices."Food inflation has also slowed recently, reflecting good harvests as well as the fading effects of the foot-and-mouth disease outbreak. El Niño may start affecting food supply next year, but this is still a risk factor and is not part of our baseline," he said.The governor reiterated that while the inflation outlook had "improved slightly", it remained too high amid slow economic growth."We are setting policy to achieve 3% inflation over time, ensuring the current supply shock does not de-anchor inflation expectations."At the same time, we recognise that South Africa's growth prospects will be driven mainly by domestic reforms. This covers structural interventions, such as fixing local government and improving productivity in network sectors such as transport and energy. It also includes the macroeconomic goals of sustainable debt and permanently lower inflation."Our main contribution is to stabilise inflation in line with our 3% target over time, and the MPC will act as needed to achieve that," Kganyago concluded.— SAnews.gov.za

SARB leaves repo rate at 7%

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SARB leaves repo rate at 7%

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