July 18, 2019 / 1:42 PM / 5 months ago

HIGHLIGHTS-South African central bank comments on rate decision

JOHANNESBURG, July 18 (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

“Monthly inflation outcomes have stayed around the mid-point of the inflation target range, as food and services price inflation remain subdued.”

“The medium term inflation outlook is unchanged.”

“Market expectations of the extent of future central bank actions appear high, creating the risk of significant market volatility should these not materialise.”

“The inflation forecast generated by the SARB’s Quarterly Projection Model (QPM) is for headline inflation to average 4.4% in 2019 (down from 4.5%). The projections for 2020 and 2021 remain unchanged at 5.1% and 4.6%, respectively.

Headline CPI inflation is expected to peak at 5.4% in the first quarter of 2020 and settle at 4.5% in the last two quarters of 2021.”

GROWTH

“The SARB now expects GDP growth for 2019 to average 0.6% (down from 1.0% in May). The forecast for 2020 and 2021 is unchanged at 1.8% and 2.0% respectively.”

“Domestic growth prospects and fiscal rate risks high among investor concerns.”

“Continued low business confidence remains a concern for the MPC.”

RAND

“While the rand has benefited from improved sentiment towards riskier assets, it underperformed its emerging market peers due to idiosyncratic factors.”

DECISION

“The MPC welcomes the continued downward trend in recent inflation outcomes and the moderation in inflation expectations of about one percentage point since 2016.”

“The overall risks to the inflation outlook are assessed to be largely balanced. Demand side pressures are subdued, wages and rental prices are expected to increase at moderate rates and global inflation should remain low.”

“Domestically, the financing needs of State-Owned Enterprises (SOE) could place further upward pressure on the currency and long-term market interest rates for all borrowers. Food, electricity and water prices also remain important risks to the inflation outlook.”

“Against this backdrop, the MPC unanimously decided to reduce the repurchase rate by 25 basis points to 6.5% per annum with effect from 19 July 2019.” (Reporting by Mfuneko Toyana Writing by Tanisha Heiberg Editing by Nqobile Dludla)

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