PRETORIA, The South African Reserve Bank’s Monetary Policy Committee (MPC), concerned over the country’s growth outlook, reduced its benchmark repo rate by 25 basis points to 6.75 per cent Thursday.

Briefing reporters following the MPC’s meeting, Reserve Bank Governor Lesetja Kganyago said the bank will not hesitate to revise the move if the need arises, noting that the central bank also remains concerned about the inflation outlookl.

Underlying demand in the economy is extremely weak and the MPC is concerned about the deterioration in the growth outlook over the forecast period. This decline is broad-based,” said Kganyago.

It is unclear where the drivers of accelerated growth will come from in the absence of credible structural policy initiatives that will reduce uncertainty and increase business and consumer confidence. The MPC assesses the risks to the revised growth forecast to be slightly on the downside.”

At the same time, the central bank remains concerned about the country’s inflation outlook, saying that inflation expectations remain sticky at the upper end of its 6.0 per cent benchmark, the Governor said.

Headline consumer inflation released by Statistics South Africa (Stats SA) on Wednesday showed that inflation eased to 5.1 per cent year-on-year in June, down from 5.4 per cent in May.

The downward revision of the repo rate surprised economists, who had expected the MPC to keep the rate unchanged at 7.0 per cent.

The MPC also said that while the Rand had more or less remained unchanged since the last MPC meeting in May, it was volatile. Kganyago said the currency remains vulnerable to global shocks and a possible credit ratings downgrade.

A further upside risk relates to the possible supply side shock of a large electricity tariff increase from July 2018. National power utility Eskom has approached the National Energy Regulator of South Africa (Nersa) for a tariff increase of around 20 per cetnt, but the current forecast assumes an increase of 8.0 per cent. This assumption will be adjusted in line with any new determinations made by Nersa.

The central bank revised downwards the country’s growth outlook from 1.0 per cent to 0.5 per cent in 2017. It said a moderate petrol price hike is likely in August following a decrease of between 69 and 68 cents in July.

The repo rate was raised to 7.0 per cent at the MPC’s March 2016 meeting.

Kganyago said four members of the MPC preferred a reduction, while two members preferred an unchanged stance.

Source: NAM NEWS NETWORK