<\/p>\n
The South African rand slumped after the central bank defied expectations by leaving interest rates unchanged to support economic growth and revised its inflation forecasts lower.<\/p>\n
The six-member\u00a0Monetary Policy Committee\u00a0(MPC) maintained the benchmark policy rate at 7%, South African Reserve Bank (Sarb) Governor Lesetja Kganyago told reporters in Pretoria on Thursday.<\/p>\n
Read:
MPC faces finely balanced rate decision on Thursday
Sarb holds rates steady at 7%<\/p>\n
Only three of 20 economists surveyed by Bloomberg expected a hold, with the rest predicting a 25-basis-point increase.<\/p>\n
\u201cThe inflation outlook has improved slightly since our last meeting, but inflation is still too high, while growth is weak,\u201d Kganyago said.<\/p>\n
\u201cWe are setting policy to achieve 3% inflation over time, ensuring the current supply shock does not de-anchor inflation expectations.\u201d<\/p>\n
The rand fell as much as 2.5% and traded 2.2% weaker at R16.76 per dollar by 5:51pm in Johannesburg \u2013 the world\u2019s worst-performing currency on the day.<\/p>\n
The yield on the benchmark 10-year bond rose 16 basis points to 8.96%.<\/p>\n
The currency drop was a \u201cpronounced and immediate reaction to the unexpected hold\u201d said Razia Khan, head of Africa research at Standard Chartered plc.<\/p>\n<\/p>\n
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Four members of the MPC backed the hold and two favoured a 25-basis-point increase.<\/p>\n
The committee highlighted risks to growth from weaker consumer and business confidence, and highlighted that most of the inflation overshoot has so far come from higher fuel costs.<\/p>\n
It said goods prices have been relatively well contained, while cautioning that for services inflation, conditions look problematic.<\/p>\n
The fallout from the Middle East conflict has impacted inflation across the world.<\/p>\n
The Sarb\u2019s decision follows rate holds in\u00a0Nigeria\u00a0and\u00a0Canada\u00a0this month and hikes in\u00a0Ethiopia\u00a0and\u00a0South Korea.<\/p>\n
South African policymakers also outlined a scenario in which they would need to hike again if consumer prices remain persistently above their 3% target and spill into food costs and core inflation because of the intensification of fighting between the US and Iran.<\/p>\n
Read:
Inflation rises to 5%, bolstering rate hike case
Inflation resurgence puts another rate hike on the cards<\/p>\n
\u201cMy base case is that we do see another hike out of the Sarb, but it\u2019s careful adjustments rather than a whole series of rate hikes,\u201d said Lauren van Biljon, portfolio manager at Allspring Global Investments.<\/p>\n
\u201cLooking ahead, key is going to be how events in the Middle East play out, and whether we see the gap between headline and core inflation continuing to grow.\u201d<\/p>\n
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South African inflation rose at its fastest pace in two years in\u00a0June\u00a0to 5%, moving further away from the central bank\u2019s 3% target.<\/p>\n
Itis forecast to stay at about 4% until early next year and is now seen averaging 4% over 2026 as a whole, compared with 4.4% previously.<\/p>\n<\/p>\n
Officials see economic growth at 1.4% this year, compared with a previous forecast of 1.2%, while warning that it could slow in the second and third quarters.<\/p>\n
The rates decision \u201cwas not about inflation, it was about growth\u201d said Kristof Kruger, a fixed-income trader at Prescient Securities.<\/p>\n
\u201cHiking further into a supply shock risked tipping a fragile economy toward recession.\u201d<\/p>\n
The central bank\u2019s closely watched quarterly projection model indicated a slight upward revision in the expected policy rate, with the year-end forecast rising to 6.79% from 6.7%.<\/p>\n
\u201cWe will take every decision meeting by meeting, depending on the data, the outlook, and the balance of risks to the outlook,\u201d Kganyago said.<\/p>\n
\u00a9\u00a02026\u00a0Bloomberg<\/p>\n
#Rand #worlds #worst #performer #day #Sarb #holds #rates<\/p>\n","protected":false},"excerpt":{"rendered":"
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