PRETORIA (Reuters) – South Africa’s Reserve Bank left its benchmark repo rate unchanged at 7 percent on Thursday, with the governor saying that moderating pressures to long term inflation left it room to pause in its tightening cycle.
The Bank had raised lending rates by a total of 100 basis points at its previous three meetings, as it fought to keep headline inflation within its target band of between 3 and 6 percent as severe drought and a weaker currency weighed.
The rand turned slightly weaker after the decision, easing to 15.9735 against the dollar.
Governor Lesetja Kganyago said the bank lowered its inflation forecast for the next three years, and noted that the country’s economic recovery would be slow.
He said that while headline consumer prices would average 6.7 percent in 2016, up from previous forecast of 6.6 percent, inflation in 2017 and 2018 would moderate.
“Although the inflation forecast has shown a moderate improvement over the medium term, the risks are still assessed to be on the upside,” Kganyago said.
“The MPC remains focused on its inflation mandate, but sensitive to the extent possible to the state of the economy.”
Inflation in Africa’s most industrialised country stood at 6.2 percent in April versus 6.3 percent in March, data showed on Wednesday.
“The MPC will not hesitate to act appropriately should the inflation dynamics require a response, within a flexible inflation targeting,” Kganyago added.
Twenty-two of the 32 economists polled by Reuters had expected the South African Reserve Bank (SARB) to hold interest rates at 7.00 percent this month.
(Writing by Mfuneko Toyana; Editing by James Macharia)