The South African Reserve Bank has revised the country’s growth forecast up from 0% to 0.4% for 2016 – and has left the repo rate unchanged.
This follows stronger than expected economic data out of the second quarter of the year, where the rand was positively impacted, and the current account deficit narrowed.
The narrowing current account deficit is due to a sizeable trade account surplus which may reflect delayed adjustment to depreciated exchange rate, the bank said. However, it warned that the trade surplus is not expected to be sustained at similar levels in the coming months.
“The rand remains vulnerable to changes in US monetary policy stance, domestic political developments, and risk of possible ratings downgrade,” the bank said. The currency remain vulnerable to domestic and external shocks, it said.
In terms of inflation, the bank sees long-term inflation sticking close to 6% due to high wage settlements and rising food prices.
Given the improved inflation outlook, weak domestic economy and assessment of balance of risks, the monetary policy committee kept the repurchase rate at 7.0%.