South Africa’s central bank reiterated its mandate is achieving price stability and said any interest-rate increases will be dependent on forthcoming data.
Inflation faces upside risks from a weak rand and rising food and energy costs, the Reserve Bank said in its annual report released on Monday in the capital, Pretoria. The pause in the rate-tightening cycle since July is likely to be temporary, the bank said.
“The bank’s Monetary Policy Committee emphasized that further moves would be highly data-dependent,” it said. “The MPC continues to face the dilemma of stubbornly high inflation in a context of weak economic growth.”
Governor Lesetja Kganyago and other MPC members have been preparing the market for an interest-rate increase since the bank left the benchmark repurchase rate unchanged at 5.75 percent last month. The bank is forecasting inflation, which accelerated to 4.6 percent in May, will exceed its 3 percent to 6 percent target band next year.
The most important risk to the inflation outlook is the rand, which has slumped 4.5 percent against the dollar this year, the Reserve Bank said. The currency gained 0.4 percent to 12.1196 against the dollar as of 3:17 p.m. in Johannesburg.
Economic growth is set to reach between 2 percent and 2.5 percent this year and in 2016, with a shortage of electricity being the most crucial impediment to output, the bank said.
“Extensive load shedding has already imposed significant costs on the economy and electricity shortages are expected to persist over the medium term,” it said. “The speed and extent of policy adjustment will remain sensitive to developments in the real economy.”