* Rand rises in response to rate decision
* One of of six MPC members votes to cut rate
* Inflation, growth seen improving
(Adds governor, analyst quotes)
By Olivia Kumwenda-Mtambo
PRETORIA, March 30 South Africa's central bank
kept its benchmark repo rate unchanged at 7 percent on Thursday,
in line with expectations, saying the exchange rate had
re-emerged as a risk to inflation following an increase in
domestic political uncertainty.
Governor Lesetja Kganyago said while the near-term inflation
and growth outlooks had improved and the bank had reached the
end of its tightening cycle, the sharp fall of the rand posed a
risk. The currency tumbled this week on President Jacob Zuma's
plan to fire Finance Minister Pravin Grodhan.
The ANC-allied South African Communist Party said earlier it
objects to Zuma's intention to sack Gordhan and his deputy
Mcebisi Jonas, in the first public confirmation that Zuma
intends to dismiss the ministers.
The rand responded to the rate decision by gaining
to 12.8225 by 1330 GMT, just shy of a session high of 12.82.
Government bonds also firmed.
"While most measures of emerging market risk have narrowed
over recent months, those for South Africa have widened again
over the past few days," Kganyago told a media conference in
Pretoria, alluding the political uncertainty.
"The rand is likely to react further to unfolding
developments until a greater degree of certainty and confidence
Five of the six members of the Monetary Policy Committee
voted to keep the rate unchanged, while one voted for a 25 basis
points reduction. The bank has raised rates cumulatively by 200
basis points since early 2014.
The bank revised its inflation outlook, predicting that
inflation would fall back into its target range of between 3 and
6 percent by the second quarter of the year, two quarters
earlier than its previous forecast.
All 30 economists surveyed in a Reuters poll last week
predicted the bank would keep rates on hold.
The bank raised its forecast for economic growth to 1.2
percent in 2017 and 1.7 percent in 2018 citing modest
improvements in the manufacturing and mining sectors, but warned
that economic activity remained constrained.
"The MPC is concerned that increased political uncertainty
could impact negatively on private sector investment and
household consumption expenditure," Kganyago said.
Sizwe Nxedlana, chief economist at First National Bank, said
the bank's dovish tone suggested it was less worried about
inflation, but noted that "the recent political uncertainty and
the associated rand weakness has reduced the odds of a rate cut
later this year."
(Additional reporting by TJ Strydom in Pretoria; Writing by
Mfuneko Toyana; Editing by James Macharia)