South Africa leaves key rate steady, warns of risks to inflation

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PRETORIA (Reuters) – South Africa’s central bank kept its benchmark repo rate unchanged at 7 percent on Thursday in line with market consensus, but warned that risks to the inflationary outlook had increased.

Delivering the last scheduled rate decision for the year, the central bank Governor Lesetja Kganyago said food price inflation was expected to moderate at a slower pace than what the bank had previously forecast.

The bank has kept the benchmark rate on hold at its last four meetings. It has raised the rate by a cumulative 200 basis since early 2014 in a bid to rein in inflation.

The rand pared losses against the dollar after the central bank left the repo rate unchanged, and traded at 14.1800 at 1352 GMT compared with 14.2375 before Kganyago’s speech.

He said the moderately higher risks to the inflation outlook required continued vigilance.

“The MPC (Monetary Policy Committee) remains concerned that the inflation trajectory is uncomfortably close to the upper end of the target range,” Kganyago told a news conference.

“While the committee retains the view that we may be close to the end of the hiking cycle, there may be a reassessment of this position should upside risks transpire.”

The bank forecasts for inflation in 2016 remained unchanged from September’s meeting at 6.4 percent, he said.

It forecast consumer prices peaking at 6.6 percent in the fourth quarter before moderating in the second half of 2017 due to improved weather conditions.

The bank also kept its growth forecast’s unchanged, anticipating GDP at 0.4 percent in 2016 and 1.2 percent in 2017, the same as it’s last meeting in September, saying the low point of economic cycle had passed.


(Reporting by Mfuneko Toyana; Editing by James Macharia)


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