South Africa's central bank kept its benchmark interest rate unchanged at six percent Wednesday, citing risks to the global economic outlook after the US Federal Reserve held its own rate at zero last week. Lesetja Kganyago, the governor of South Africa's Reserve Bank, said the decision by the US Fed had "added uncertainty to an already volatile setting."
"The MPC (Monetary Policy Committee) has unanimously decided to keep the repurchase rate unchanged for now at six percent per annum," he said. Kganyago stated that South Africa's domestic economic outlook had deteriorated following the surprise contraction in the second quarter of the year. Slowing growth in China - the country's leading export destination for raw materials - posed a further challenge for the economy on top of a slump in commodity prices and the falling rand. Since the last MPC meeting on July 23, the rand has declined by about nine percent against the US dollar and by about 10 percent against the euro.
According to Mohammed Nalla, head of strategic research at Nedbank, the Fed decision and falling oil prices gave scope for the South African Reserve Bank to hold the key rate. "The Fed decision had a big impact... we will have to see how things develop in the US, since it has a primary impetus on the global basis for higher policy rates," said Nalla. "A rate hike would possibly push the economy into further levels of distress. I think the Reserve Bank is well aware of that." The rates decision was preceded Wednesday by the announcement of a drop in annualised inflation from five percent in July to 4.6 percent in August, driven in part by declining fuel prices. The reserve bank warned of "upside risks to the inflation outlook" mainly rising from the exchange rate. Kganyago said the rand had "already depreciated significantly against the advanced economy currencies.and is still likely to react further to the commencement of US monetary policy tightening."