On Thursday, the South African Reserve Bank opted to leave the repo rate unchanged at 6.5 percent, SARB governor Lesetja Kganyago said

The central bank’s Monetary Policy Committee (MPC) took the decision to leave the rate steady amid forecasts that economic activity will remain weak for the rest of the year and indications that inflation has recently dipped below the mid-point of the inflation target range.

The bank said despite a rebound in gross domestic product (GDP) growth in the second quarter, third-quarter growth was expected to remain weak given recent mining and manufacturing indicators and continued low export growth.

“The GDP outcome is expected to be weak. Public sector investment has declined, export growth remains low, whereas government and household consumption continue to grow, albeit modestly,” the bank said.

“While trade and manufacturing indicators continue to be weak, services have remained more resilient, keeping overall global growth rates up. However, services have shown weakness in some regions and a range of downside risks to growth remain.”

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It dropped its growth forecast for 2019 down to 0.5 percent from 0.6 percent, and also lowered its forecasts for 2020 and 2021 to 1.4 percent and 1.7 percent.

The bank said the MPC saw risks to the growth forecast to be to the downside

“Escalation in global trade tensions, geo-political risks, further domestic supply constraints and/or sustained higher oil prices could generate headwinds to growth. Public sector financing needs have risen, raising the prospect of further pressure on the currency and pushing borrowing costs for the broader economy higher.”

“Escalation in global trade tensions, geo-political risks, further domestic supply constraints and/or sustained higher oil prices could generate headwinds to growth. Public sector financing needs have risen, raising the prospect of further pressure on the currency and pushing borrowing costs for the broader economy higher.”

The bank said uncertainty about inflation risks was exceptionally high.

Its measure of core inflation remains unchanged at 4.0 percent, while producer price inflation for final manufactured goods decreased to 4.1 percent in September.

It adjusted its forecast for core inflation for the year down to 4.2 percent and to 4.5 percent for 2020.

“The MPC welcomes the sustained moderation in inflation outcomes and inflation expectations and would like to see inflation expectations anchored closer to the midpoint of the inflation target range on a sustained basis.

“Against this backdrop, the MPC decided to keep the repurchase rate unchanged at 6.5 percent per annum.”

Kganyago said three members of the committee preferred to keep interest rates on hold and two members preferred a cut of 25 basis points.

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Author: ANA Newswire