JOHANNESBURG – South Africa’s central bank kept interest rates on hold on Thursday, saying a weak economy had persuaded it to pause a cycle of hikes that it was ready to resume if price pressures picked up again.
The Reserve Bank called the growth outlook “extremely challenging”, with Africa’s most developed economy now expected to remain at a standstill in 2016 compared with earlier forecasts of a 0.6 percent expansion.
All 31 economists surveyed by Reuters about a week ago predicted the bank would hold its benchmark repo rate at 7 percent, with their median forecast pointing to a 25 basis point increase at its November meeting to tame inflation pressures.
Although inflation was likely to remain above the central bank’s 3-6 percent target until late 2017, it said the inflation forecast was more benign than at its last policy meeting in May.
“The assessment of the balance of risks to the inflation outlook and the weak domestic economy has provided some room to delay further tightening …for now,” Governor Lesetja Kganyago told a news conference.
Kganyago said the bank had “pressed the pause button” on hikes, though it was ready to react appropriately to significant changes in the inflation outlook.
The Reserve Bank has raised rates by 200 basis points since early 2014, though it also kept them on hold in May.
The rand extended gains against the dollar after Thursday’s policy decision, while government bonds also strengthened.
NKC African Economics analyst Hanns Spangenberg said that, as things stood, he expected a least one more 25 basis point hike this year.
“But if the current status quo of excess global liquidity continues, the rand continues to appreciate and growth continues to disappoint, the door for further rate hikes …will continue to close,” he added.
The bank, whose monetary policy committee next meets on Sept 22, said the rand had been supported by the global search for yield but was vulnerable to any downturn in risk appetite, indication of a U.S. rate hike or threat of credit ratings downgrades.
The bank has previously warned that South Africa, which managed to hold on to its investment grade ratings from Moody’s, Fitch and S&P earlier in the year, risked being cut to “junk” if the ailing economy showed no improvement.