South Africa’s Reserve Bank Governor Lesetja Kganyago, who is also International Monetary Finance Committee (IMFC) chairman, makes remarks at a closing news conference for the IMFC, during the IMF and World Bank’s 2019 Annual Meetings of finance ministers and bank governors, in Washington, U.S., October 19, 2019. REUTERS/Mike Theiler
PRETORIA (Reuters) – South Africa’s central bank kept its repo rate unchanged at 6.5% in a close decision on Thursday, saying it wanted to see inflation expectations closer to the midpoint of its target range, despite a sustained drop in headline inflation.
Three members of the central bank’s monetary policy committee had preferred to keep the repo rate on hold and two had wanted a cut of 25 basis points (bps), Reserve Bank Governor Lesetja Kganyago told a news conference.
The central bank’s main focus is keeping inflation near the middle of its 3%-6% target range, but inflation has regularly surprised to the downside this year owing to tepid economic growth.
October inflation data came in below expectations at 3.7% year on year on Wednesday, an almost nine-year low.
Twenty-one of the 28 economists polled by Reuters last week said the repo rate would remain on hold, while seven predicted it would be cut by 25 bps.
“The overall risks to the inflation outlook are assessed to be balanced, but uncertainty about inflation risks is unusually high,” Kganyago said, citing unpredictable weather, food and utility prices and a volatile exchange rate.
“In this persistently uncertain environment future policy decisions will continue to be highly data-dependent.”
The central bank lowered its forecast for economic growth this year to 0.5%, from 0.6%, and lowered its forecasts for the next two years to 1.4% and 1.7%, respectively.
It said business confidence remained weak and that longer-term weakness in most sectors was a serious concern.
Reporting by Mfuneko Toyana and Naledi Mashishi; Writing by Alexander Winning; Editing by Tim Cocks