September 20, 2018 / 1:04 PM / in a month

HIGHLIGHTS-South African central bank comments on rate decision

PRETORIA, Sept 20 (Reuters) - Below are comments from South African Reserve Bank (SARB) Governor Lesetja Kganyago on Thursday as he announced the central bank’s latest decision on its benchmark repo rate.

INFLATION

“Since the previous meeting of the MPC, risks to the inflation outlook have continue to materialize and the inflation outlook has deteriorate in response to both domestic and external developments.

“Despite remaining with the inflation target range throughout the forecast period, the SARB’s model projects an increase in headline inflation, peaking at levels closer to the upper end of the target range.

“Headline inflation trajectory is explained by the weaker rand exchange rate and higher oil prices.

“Average wage growth is expected to remain elevated at around 7% over the forecast period. Much of the upward pressure on wage inflation arises from the public sector wage settlements, which are above headline inflation.

“Elevated international contribute to fuel price inflation. Other administered prices are expected to at rates above the upper end of the inflation target, as water and electricity tariffs rise, alongside rates and taxes in major metros.

“While the global economic outlook is expected to remain broadly favourably over short term, medium term risks are tilted to the downside due to elevated policy uncertainty.

“Uncertainty arises from escalating trade tensions and tightening global financial conditions.”

RAND

“Global inflation outlook is in a moderate upward path, largely due to rising oil prices and higher GDP growth rates in some advanced economies.

“Since the July MPC, the rand has depreciated by 7.3 percent against the dollar on a trade weighted basis.

“At current levels, the SARB’s model assess the rand to be undervalued.

“Tighter global financial conditions and the change in investor sentiment towards emerging markets remain key external risks to the rand and it is likely that the rand among with other emerging market currencies will remain volatile.

“The SARB now forecasts growth in 2018 to average 0.7% (down from 1.2% in July). The forecast for 2019 and 2020 is unchanged at 1.9% and 2.0% respectively.

“At these growth rates, the negative output gap is wider in the near term, but is still expected to close by the end of 2020 as GDP growth rates exceed potential growth.

“Growth in gross foxed capital formation is expected to remain weak.

“In the medium term, the increase in disposable income is expected to be supportive of consumption expenditure.

“Household expenditure is likely to be constrained by recent tax changes, weak employment growth as well as subdued growth in credit extension to households.

“The MPC notes the rising inflation trajectory which, while remaining within the target range is moving further away from the mid-point of the target range.” (Reporting by Nomvelo Chalumbira Editing by James Macharia)

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