Little room to defer policy response, says Sarb

Johannesburg - The South African Reserve Bank (Sarb) said on Friday there is little space to defer a monetary policy response as inflation expectations are already close to the top end of its target range.

The bank has raised lending rates by 200 basis points to 7% over the past two years in a bid to keep inflation within its target band of 3% to 6%, despite sluggish economic growth.

South Africa's headline consumer inflation unexpectedly slowed to 6.1% year-on-year in May from 6.2% in April, Statistics South Africa said on Wednesday.

READ: Surprise drop in consumer inflation

"As most measures of underlying inflation and inflation expectations are already close to the top end of the inflation target range, there is little space to defer a policy response," the bank said in its 2015/16 annual report.

The bank, however, said policymakers are cognisant that economic growth is very subdued.

Sarb forecast Africa's most advanced economy to grow by 0.8% this year, hobbled by low commodity prices, a drought and political ructions that have unnerved investors.

"In recognition of this challenge, the current interest rate hiking cycle has been slower than any in recent history. In both nominal and real terms, the repo rate remains at relatively low levels," the bank said.

In his comments in the report, governor Lesetja Kganyago said 2015/16 proved to be an extremely challenging time for monetary policy against the backdrop of slowing global and domestic economic growth.

"The coming year is likely to be no less challenging," he said.