• SAfrica holds key rate at 7% as woes mount

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    JOHANNESBURG: The South African central bank held its benchmark interest rate unchanged at 7.0 percent on Thursday, warning of continued high inflation and slowing growth.

    The country’s sluggish economy is facing the threat of a credit rating downgrade to junk status, as unemployment reaches record highs and political tensions unnerve investors.
    In March, the bank raised its key rate to 7.0 percent—a six-year high—to tackle rising inflation.

    South African Reserve Bank (SARB) Governor Lesetja Kganyago said the central bank’s policymakers “felt that there is some room to pause in this tightening cycle, and accordingly decided to keep the repurchase rate unchanged.”

    He said that the bank had nudged up its 2016 inflation forecast to 6.7 percent, and that the inflation rate would likely stay above the bank’s 6-percent upper target range next year.

    “The domestic economic growth outlook remains weak, with the bank’s GDP growth forecast for 2016 revised down from 0.8 percent to 0.6 percent,” Kganyago added.

    Africa’s most advanced economy is beset by its worst growth rate since end of apartheid in 1994, while unemployment stands at 26.7 percent.

    Domestic political upheavals, particularly President Jacob Zuma’s sudden sacking of finance minister Nhlanhla Nene in December, have seen the rand weaken against the dollar, fuelling inflation.

    “The exchange rate remains highly sensitive to domestic political developments and risks of an earlier than expected tightening in US monetary policy,” said Kganyago.

    Zuma, who faces a prospect of prosecution for corruption charges dating back to before he took power, has endured a series of scandals in recent months.

    Local elections in August could prove a harsh test for his ANC party that has ruled since 1994.

    Ratings firms Fitch and Standard and Poor’s both have South Africa’s debt rated one level above junk status, with Finance Minister Pravin Gordhan vowing to take action to avert a downgrade.

    “Despite the decision not to change rates . . . the short term inflation outlook is not rosy,” First National Bank economist Sizwe Nxedlana said in a statement.

    AFP

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