Aligning with what many analysts and economists predicted, the South African Reserve Bank has left the repo rate unchanged at 7%.
In making the announcement, SARB governor Lesetja Kganyago said that despite inflation having moderated, the outlook for South Africa’s economic growth has deteriorated.
“Domestic economic growth prospects have deteriorated, as the impact of the ratings downgrade is expected to weigh on domestic investment and consumer sentiment over the forecast period,” he said.
However, the trajectory of the growth forecast is still positive, and the growth rate for this year is expected to exceed that recorded in 2016. Growth is expected to reach 1% (down from 1.2% forecast in March).
The governor warned of further ratings decisions coming shorty – particularly from Moody’s – which will have an impact on the economy.
“With further ratings decisions imminent, risks remain for a further depreciation against the backdrop of continued global and domestic political uncertainty,” Kganyago said.
“Headline inflation has now returned to within the target range as expected, with outcomes in March and April surprising on the downside,” he said.
“While the inflation outlook has improved over the near term, the longer-term forecast trajectory is unchanged and uncomfortably close to the upper end of the target range.”
Kganyago said that the predicted inflation rate will average 5.7% for 2017, shifting down to 5.1% in 2018 and 5.3% in 2019.