By Lehlohonolo Lehana.
The South African Reserve Bank’s Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 3.5%.
In a statement on Thursday afternoon (25 March) Reserve Bank governor Lesetja Kganyago said the decision to hold the rate was unanimous among MPC members.
However, he said that further rate hikes could be on the cards later in 2021 based on projection models.
"The implied policy rate path of the Quarterly Projection Model indicates an increase of 25 basis points in each of the second and fourth quarters of 2021," he said.
"Compared to the previous meeting, the shift in the rate path from the third to the fourth quarter is due to somewhat lower inflation in 2022."
Kganyago added that the overall risks to the inflation outlook appear to be balanced.
A more appreciated nominal exchange rate in recent months, and generally low pass-through, is expected to continue to moderate some inflationary pressure, he said.
"While global food price inflation remains high, local food price inflation is slightly lower than previously expected and should remain broadly contained due to higher local crop production.
"Oil prices have increased sharply this year and are expected to remain at these levels over the forecast horizon."
Kganyago said that electricity and other administered prices remain upside risks to the inflation trajectory.
While there are no demand side pressures evident at present, higher growth in 2021 and no change in the potential growth rate implies a narrowing of the output gap over the forecast period, compared to the January meeting, he said.
"Unless the risks outlined earlier materialise, inflation is expected to be well contained in 2021, before rising to around the midpoint of the inflation target range in 2022 and 2023."
Meanwhile data from Statistics South Africa on Wednesday (24 March), showed that South Africa’s headline consumer price inflation slowed to 2.9% year-on-year in February from 3.2% in January.
Month-on-month (m/m) inflation rose by 0.7% in February compared to 0.3% in January, the data showed.
The main drivers behind February’s monthly increase were the fuel and medical insurance categories, while meat, housing, water and electricity, new vehicles and medical insurance contributed most to the y/y increase.
On February’s CPI, Statistics South Africa said that this is the third time in the past 12 months that the annual rate has slipped below the bottom end of the South African Reserve Bank’s inflation target range. Inflation was below this 3% level in May and June last year.