'More moving parts than usual' prompted cautious approach on repo rate - Kganyago

JOHANNESBURG - The contentious value-added tax (VAT) increase and global trade wars were among the top issues that weighed on the South African Reserve Bank during this week’s monetary policy committee (MPC) meeting.

The central bank held the repo rate at 7.5% after a three-day meeting on policy rates.

The announcement comes as no surprise, with some economists forecasting a pause as early as last week.

With the repo staying put, the prime lending rate follows at 11%.

The world economy is experiencing extreme levels of uncertainty.

Trade tensions have escalated and long-standing geopolitical relationships are shifting abruptly.

With this, reserve bank governor, Lesetja Kganyago, said the global economic outlook was unpredictable.

"Some policy adjustments by major central banks are still expected this year, but rates are likely to remain high for longer, given new inflation risks."

Domestically, he said there are also too many moving parts, prompting caution from the central bank.

"In terms of the outlook, the current forecast had more moving parts than usual, including a reweighting of the consumer price index by Statistics South Africa, and the proposed value-added tax (VAT) increases announced in the budget. We also adjusted assumptions such as the oil price, to reflect shifts in global markets. We see risks to this forecast on both the upside and the downside, with the balance of risks in the medium term skewed to the upside."

The reserve bank’s decision comes a day after the US Federal Reserve also decided to hold its benchmark rate steady at its rate-setting Federal Open Market Committee.