South African Reserve Bank governor, Lesetja Kganyago, has announced that the Monetary Policy Committee will cut the country’s national interest rates.<\/p>\n
Following the cut, the repo rate is now 6.75% and the prime lending rate is 10.25%.<\/p>\n
Kganyago said\u00a0<\/span>the decision was made as rand remains vulnerable to global monetary policy developments and credit ratings downgrades.<\/span><\/p>\n “Given the improved inflation outlook and the deteriorated growth outlook, the MPC has decided to reduce the repurchase rate by 25 basis points with effect from 21 July 2017, to 6.75% per annum,” governor Kganyago<\/span> said, noting that four members preferred a reduction, while two members preferred an unchanged stance.<\/p>\n He warned that a number of risks to the inflation outlook persist and the MPC assesses the risks to the inflation outlook to be broadly balanced. Although the rand has been relatively resilient, it remains vulnerable to heightened political uncertainty, global monetary policy developments and possible further credit ratings downgrades.<\/p>\n “On the positive side, it is supported by a sustained narrowing of the current account deficit and positive investor sentiment towards emerging markets,” Kganyago<\/span> said.<\/p>\n A further upside risk relates to the possible supply side shock of a large electricity tariff increase from July next year, the governor said. Eskom has approached Nersa for an increase of around 20%, but the current forecast assumes an increase of 8%.<\/p>\n This assumption will be adjusted in line with any new determinations made by Nersa, the governor said.<\/p>\n “The MPC also remains concerned that inflation expectations remain sticky at the upper end of the target range,” Kganyago said.<\/p>\n “In this highly uncertain environment, future policy decisions will be dependent on data outcomes and our assessment of the balance of risks. We remain vigilant and would not hesitate to reverse this decision should the inflation outlook and risks deteriorate.”<\/p>\n The decision to cut the current rate by 25 basis points comes as a surprise, with many analysts speculating that the bank would leave the rates unchanged for the 15th month in a row.<\/p>\n However traders were pricing in a 25 basis-point rate cut by the end of the year, according to forward-rate agreements used to speculate on borrowing costs.<\/p>\n The cut is also expected to bring some much needed relief to consumers\u00a0with inflation easing as food-price growth slows amid the country\u2019s recovery from the worst drought in more than a century.<\/p>\n <\/p>\n
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