March 19, 2020 / 1:38 PM / 21 days ago

HIGHLIGHTS-South African central bank comments on rate decision

PRETORIA, March 19 (Reuters) - Below are comments from South African Reserve Bank (SARB) Governor Lesetja Kganyago on Thursday as he announced the central bank’s latest decision on its benchmark repo rate, a cut of 100 basis points.

INFLATION

“The Bank’s headline consumer price inflation forecast averages 3.8% for 2020, 4.6% for 2021, and 4. 4% in 2022. The forecast for core inflation is lower at 3.9% in 2020, 4.3% in 2021, and 4.4% in 2022.”

“With the downward revision to the forecast, the overall risks to the inflation outlook at this time appear to be balanced. Electricity pricing remains an immediate concern, and there is likely to be higher volatility in prices of other goods and services as a result of sharp changes in demand and supply.”

“Risks to inflation from recent currency depreciation are expected to be muted as pass-through is slow and could be offset by a wider output gap. Food price inflation is expected to remain low, in part due to better weather conditions.”

GROWTH

“The domestic economic outlook remains fragile. At this point, Covid-19 is likely to result in weaker demand for exports and domestic goods and services, but its impact on the economy could be partly offset by lower oil prices.”

“We also expect disruptions to supply chains and to normal business operations. The Bank now expects the economy to contract by 0.2% in 2020. GDP growth is expected to rise to 1.0% in 2021 and to 1.6% in 2022.”

DECISION

“Despite the general rise in risk, the significantly lower forecast for headline inflation has created space for monetary policy to respond to the rapid deterioration in economic conditions.”

“Barring severe and persistent currency and oil shocks, inflation is expected to be well contained, remaining below the midpoint of the target in 2020 and close to the midpoint in 2021.”

“Against this backdrop, the MPC decided to cut the repo rate by 100 basis points. This takes the repo rate to 5.25% per annum, with effect from 20 March 2020. The decision was unanimous.”

“The implied path of policy rates over the forecast period generated by the Quarterly Projection Model indicated three repo rate cuts of 25 basis points each in the second and fourth quarter of 2020, as well as in the third quarter of 2021.” (Reporting by Johannesburg bureau)

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