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Inflation near the top of target limits policy options

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South Africa’s Monetary Policy Committee has little room to delay acting while inflation and price-growth expectations are hovering near?the ceiling of the target range, according to the Reserve Bank.

The contribution of monetary policy “is to counteract the temporary improvement in specific prices from transforming into a permanent acceleration in overall inflation,”?the central bank said within the annual report for your year through March 2016, released on its website on Friday. “As most measures of underlying inflation and inflation expectations already are nearby the luxury in the inflation target range, there is little space to defer a plan response.”

While inflation slowed in order to six.1% in May, the smallest rate in 2010, the central bank has forecast price growth will still only revisit its 3% to 6% target band within the third quarter of next season like a weak rand as well as the worst drought in many than only a century keep costs elevated. South Africa’s monetary policy dilemma of high inflation and slow growth became more pronounced following economy contracted while in the ninety days through March, Governor Lesetja Kganyago said on June 22.

“Policymakers are cognisant that growth is incredibly subdued,” the central bank said. “In recognition of this challenge, the existing interest-rate hiking cycle has become slower than any in the recent past.”

The Reserve Bank’s Monetary Policy Committee left the benchmark repurchase rate unchanged at 7% last month after raising it four times since July. The MPC will announce its next rate decision on July 21.

The rand weakened 4.4% to 15.0786 per dollar at the time of 11:09am in Johannesburg after the UK voted?to give up nations, roiling global markets. Yields on rand-denominated government bonds due December 2026 rose 19 basis suggests 9.07%.

“Even at low levels of pass-through, marked rand depreciation has appreciable inflation consequences, and there are a couple of risks that pass-through may revert more detailed historical norms,” the central bank said.

The Reserve Bank increased Kganyago’s?total remuneration to R6.33 million from R4.78 million, based on the annual report. The central bank’s total profit rose to R1.58 billion from R627 million.

? 2016 Bloomberg

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