Bar for SA interest rate cut stays high - Mminele

Johannesburg - The bar for interest rate cuts in South Africa remains high even as the Reserve Bank may be close to the end of its policy tightening cycle, deputy governor Daniel Mminele said.

“There is no guarantee that the causes of the reduced risks to the inflation outlook will persist in coming quarters,” Mminele said in a copy of a speech posted on the central bank’s website Tuesday. “Some of the factors which have had a favorable impact on the inflation outlook could reverse quickly, in which case the view that we are close to the end of the tightening cycle would need to be reassessed.”

The central bank’s Monetary Policy Committee left its benchmark repurchase rate unchanged at 7% last week for the third straight meeting to help support an economy forecast to expand at the slowest pace this year since a 2009 recession due to weak export demand, the worst drought in more than a century and low commodity prices.

The MPC cut its inflation forecast and now projects price growth will return to its 3% to 6% target band on a sustainable basis in the second quarter of next year.

“In light of the new forecast, we may be close to the end of the tightening cycle,” Mminele said. “Policy must remain dependent on forthcoming data and events, and continued vigilance is warranted.”

Inflation slowed to 5.9% in August, the lowest rate this year. Price-growth expectations remain near the upper end of the target band and show no obvious sensitivity to slowing economic growth, Mminele said. Africa’s most-industrialised economy will probably expand 0.4% this year compared with 1.3% in 2015, according to central bank forecasts.

The rand strengthened 1% to R13.5510/$ by 10:57 in Johannesburg. Yields on rand-denominated government bonds due December 2026 fell three basis points to 8.60%.