By Wendell Roelf
CAPE TOWN – South Africa’s central bank is worried that inflation expectations are anchored at the top end of its 3-6 percent target band although even small rate hikes would help tame the pressures, Governor Lesetja Kganyago said on Wednesday.
“The bottom line here is that given where the policy rate is now, even small adjustments in the policy rate would have the desired effect of taming the inflation pressures that are building up,” he told Reuters on the sidelines of a conference in Cape Town.
Several members of the bank’s Monetary Policy Committee which Kganyago chairs have also said in the last week that benchmark repo rate may have to go up from the current 5.75 percent soon because of bubbling price pressures.
In its monetary policy review on Tuesday, the South African Reserve Bank said the case for rate cuts had evaporated.[pro_ad_display_adzone id=”70560″]
Core inflation in Africa’s most advanced economy has been creeping up in the last few months as global oil prices have rallied from multi-year lows at the start of the year and a severe domestic drought has hammered the maize harvest.
However, on the growth side, chronic electricity shortages have crimped the prospects for GDP expansion, seen at a sluggish 2 percent in 2015.
The bank’s outlook suggests inflation will average 6.1 percent next year, having breached the upper target limit in the first quarter.
“We are worried that inflation expectations seem to be anchored around the upper band of our target range and we may have to act if we believe there will be a sustained breach,” Kganyago said.
(Reuters)