South Africa Reduces Repo Rate to 6.75%

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The Reserve Bank’s Monetary Policy Committee (MPC) has reduced the repo rate by 25 basis points to 6.75 percent.

Reserve Bank Governor Lesetja Kganyago said the bank “will not hesitate to revise the move if the need arises”.

“Underlying demand in the economy is extremely weak and the MPC is concerned about the deterioration in the growth outlook over the forecast period. This decline is broad-based.

“It is unclear where the drivers of accelerated growth will come from in the absence of credible structural policy initiatives that will reduce uncertainty and increase business and consumer confidence. The MPC assesses the risks to the revised growth forecast to be slightly on the downside,” said Kganyago.

The central bank said it remains concerned about the country’s inflation outlook, saying that expectations remain sticky at the upper end of its 6 percent benchmark.

Headline consumer inflation released by Statistics South Africa (Stats SA) on Wednesday showed that inflation eased to 5.1 percent year-on-year in June, from 5.4 percent in May. It, therefore, shocked many analysts who had expected the MPC to keep the repo rate unchanged at 7 percent that a reduction was voted for.

The MPC also said that while the Rand had more or less remained unchanged since the last MPC meeting in May, it was still volatile and remains vulnerable to global shocks as well as a possible credit rating downgrade.

The apex bank revised downwards the growth outlook from 1 percent to 0.5 percent in 2017. It said a moderate petrol price hike is likely in August following a decrease of between 69 and 68 cents in July.

The repo rate was raised to 7 percent at the MPC’s March 2016 meeting.

Kganyago said four members of the MPC preferred a reduction, while two members preferred an unchanged stance.

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