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South Africa’s Reserve Bank Lifts Interest Rates to 6 Percent

Lesetja Kganyago

Governor Lesetja Kganyago

PRETORIA (Reuters) – South Africa’s Reserve Bank lifted interest rates by 25 basis points to 6.00 percent on Thursday, a decision viewed as a borderline call, with the bank saying it remained in a hiking cycle while upside risks to inflation remained in place.

The bank last raised benchmark lending rates in July 2014, but since then Africa’s most advanced economy has been constrained by chronic power shortages along with other structural obstacles.

“The committee is concerned that failure to act against these heightened pressures and risks will cause inflation expectations to become entrenched at higher levels,” said Governor Lesetja Kganyago.

“The MPC has therefore decided to continue on its path of gradual policy normalisation.”

Increases to electricity tariffs, which the bank previously flagged as an upside threat to its inflation outlook, did not materialise after state utility Eskom’s application for double digit increases was turned down in June by the national energy regulator.

“Although the risks of higher electricity tariffs did not materialise as yet, other upside risks persist,” Kganyago said.

Kganyago said the bank expected inflation to breach the upper band of its target range in the first two quarters of 2016.

The bank said the pace of nominal wage growth remained high and contributed to persistently high inflation.

Government recently backed down from its plan to offer public sector unions a lower pay rise, acceding to demands for an above inflation rise of 7 percent and CPI plus one percent increase for 2016/17 and 2017/18, adding further pressure to the inflation outlook.


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