SA Reserve Bank raises rates by 0.25%

Reserve Bank governor Lesetja Kganyago pointed to a weak growth outlook and to food price inflation as one of the biggest risks in inflation.

Peter Worthington, chief economist at Barclays Africa Group anticipated the increase and expects another towards the end of the year. Worthington points out that although food inflation was currently falling, it was expected to rise during the second half of this year. He noted that maize prices had risen by 20 percent since May, and said that the increase was already coming through the producer price index (PPI) which measures inflation at the factory gate.

Kganyago pointed out that the PPI reached its most recent low point of 2.6% in February but has been above 3% in May and June.

He also pointed to a temporary respite for South African consumers from oil prices, which have dipped below $60 per barrel as Saudi Arabia raised production and the possibility of oil exports from Iran resuming.

Kganyago said if the trends persisted, South Africans could expect a 40 cents per litre decrease in August after the cost of petrol rose by 90 cents over the past two months.

The Reserve Bank now expects inflation to breach the upper target of 6 percent during the first half of 2016.

Sizwe Nxedlana, chief economist at First National Bank, said he expected inflation to peak at 7 percent during this period. Nxedlana also noted that when inflation dropped to hover close to the 6 percent mark, it would make the Reserve’s Bank’s job of keeping inflation in check even more difficult.

Kganyago said growth outlook remained weak, with growth expected to reach 2.1 in 2016 and 2.6 percent in 2017. He said, in reference to persistent loadshedding, that increased growth would occur in the years ahead “when the electricity supply constraint is expected to ease”.

ANA