The current pause in South Africa’s monetary policy tightening cycle is likely to be temporary, while the speed and extent of future adjustments will remain sensitive to the real economy, the reserve bank said on Monday.
In its annual report, the bank said prevailing electricity shortages posed the foremost danger to inflation and economic growth, with new power stations due to come online unlikely to ease the strain immediately.
The South African Reserve Bank’s monetary policy committee has kept the benchmark repo lending rate on hold at 5.75 percent at five meetings since hiking it by 25 basis points in July 2014.
“Monetary policy is constrained by the proximity of core inflation and inflation expectations to the upper end of the target range,” the bank said, adding that the MPC faced the dilemma of stubbornly high inflation in a context of weak economic growth.
“In this environment, the pause in the tightening cycle is likely to be temporary … The speed and extent of policy adjustment will remain sensitive to developments in the real economy.”
Africa’s most advanced but ailing economy expects growth of just 2% this year, which finance minister says would have been between 2.5 and 3% were it not for the worst power crunch in seven years.
South Africa’s inflation edged up to 4.6% year-on-year in May from 4.5% in April, edging closer to the top end of the bank’s 3-6% target band.
