Views Article – Sharenet Wealth

Africa, Forex

South Africa keeps rates unchanged, says unrest likely to slow recovery

* SARB keeps repo rate unchanged at 3.5%

* Leaves 2021 GDP forecast at 4.2%

* Says unrest has negated better Q1

* Sees inflation staying contained (Adds detail on inflation, context)

By Promit Mukherjee

JOHANNESBURG, July 22 (Reuters) – South Africa’s central bank said on Thursday that recent unrest would probably slow the country’s economic recovery from the COVID-19 pandemic, as it left its repo rate unchanged at 3.5% in a unanimous decision.

The South African Reserve Bank (SARB) has now kept rates on hold in its last six meetings, diverging from some other emerging market central banks which have already started to raise borrowing costs.

Thursday’s decision was in line with a Reuters poll published last week in which all 30 economists polled expected no change in rates.

The bank also kept its gross domestic product (GDP) growth forecasts for 2021 and 2022 unchanged at 4.2% and 2.3% respectively.

“Recent unrest and economic damage could have lasting effects on investor confidence and job creation,” SARB Governor Lesetja Kganyago told a news conference, adding that the economic knock from the unrest would negate the benefits of a strong first-quarter performance.

South Africa saw mass looting and arson last week, in some of the worst civil unrest of the post-apartheid era.

It was initially triggered by the jailing of former president Jacob Zuma but later turned into broader protests against the poverty and inequality that persist almost three decades after the end of white minority rule.

Some analysts have predicted the unrest could lead to a short-term spike in inflation due to panic-buying and an ensuing shortage of supplies, but the SARB said price pressures would likely moderate in the latter part of the year and into 2022.

It revised its consumer price inflation forecast for 2021 slightly higher to 4.3% from 4.2% but shifted its 2022 forecast lower to 4.2% from 4.4%.

The bank targets inflation of between 3% and 6%, and a recent pickup in inflation had led some to believe that an interest rate hike was around the corner.

SARB added: “Despite higher expectations and continued upside risks, the Committee expects inflation to be contained in 2021 and 2022, before rising to around the midpoint of the inflation target range in 2023.”

(Additional reporting by Olivia Kumwenda-Mtambo and Alexander Winning Editing by Gareth Jones)

© 2019 Thomson Reuters. All rights reserved. Reuters content is the intellectual property of Thomson Reuters or its third party content providers. Any copying, republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters shall not be liable for any errors or delays in content, or for any actions taken in reliance thereon. "Reuters" and the Reuters Logo are trademarks of Thomson Reuters and its affiliated companies.