South Africa’s Central Bank cut its main lending rate as expected on Thursday, but it struck cautious tone that suggested future cuts in borrowing costs were not a foregone conclusion despite benign inflation.
South African Reserve Bank (SARB) is one of many central banks under pressure to ease monetary policy as fears about domestic and global growth intensify.
Africa’s most industrialised economy contracted by 3.2% in the first quarter, a major setback for President Cyril Ramaphosa’s efforts to rebuild investor confidence.
The SARB cut rates by 25 basis points to 6.5% in a unanimous decision which marked its first easing step since March 2018.
The rand gained and the benchmark 2026 government bond strengthened after the decision was announced.
“The monetary policy committee welcomes the continued downward trend in recent inflation outcomes and the moderation in inflation expectations of about one percentage point since2016,” SARB Governor Lesetja Kganyago told a news conference. ”
However, the impact of upside risks to the inflation outlook could be significant,” he added, citing shifts in global market sentiment, bailouts of state firms and utility price rises among potential risks.
The SARB lowered its growth forecast for 2019 to 0.6% fromthe 1.0% forecast at its last monetary policy meeting in May.
The bank kept its inflation forecasts broadly steady, with price increases of 4.4% and 5.1% seen in 2019 and next, within its 3% to 6% target range.
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