Concerns raised over SA's growth ahead of ratings decisions

Reserve Bank governor Lesetja Kganyago says upside risks to the inflation outlook have increased

Reserve Bank governor Lesetja Kganyago says upside risks to the inflation outlook have increased

There are concerns that growth will be hindered with significant capital outflows if ratings agencies Moody's and Standard & Poor's Global downgrade the country on Friday.

Kganyago said the economic policy implications of the ANC electoral conference in December would weigh on the local unit as well as credit rating reviews.

While SA's moribund economy could do with the potential stimulatory effects of a rate cut‚ the threat of the downgrades to junk constrains the Bank.

"Factors that impacted on the rand during the period included the ongoing uncertainty with regard to the outcome of the ANC electoral conference in December; concerns about a faster pace of monetary tightening in the United States; the negative reaction to the MTBPS (medium-term budget policy statement ); and speculations regarding the introduction of free higher education in South Africa".

The rand had depreciated by 3.6% against the dollar since September‚ he said; by 3% against the euro and by 3.3% on a trade-weighted basis.

"These.two factors have raised the risk of sovereign ratings downgrades, a risk that has been hanging over the rand for some time", Mr. Kganyago said, referring to the bigger projected deficit and the prospect of increased government costs for higher education.

Consumer inflation slowed to 4.8% in September‚ Statistics SA reported on Wednesday.

Kganyago said weak fiscal forecasts in the national budget announced in October had also reduced scope for rate cuts.

The bank revised the inflation outlook upward for 2018 and 2019 to 5.2% and 5.5%, from 5.1% and 5.4% previously.

"Though, with inflation set to remain within the SARB's target range and growth still soft, we find it unlikely that the SARB will deliver the rate hikes the markets are now pricing in over the coming months", Jackson said.

- 2017: 5.3% - 2018: 5.2% - 2019: 5.5%.

The Bank's forecasts‚ however‚ were not much changed from September's already-low projections. However, it lowered its estimate for 2018 to 1.2% from 1.3% and cut its 2019 forecast to 1.5% from 1.7%.

When the Bank stayed its hand in September‚ many economists said it had missed its window for a last stimulatory cut in the current cycle.

The Reserve Bank on 23 November 2017 kept the repo rate unchanged at 6.75% per annum, announced South African Reserve Bank Governor, Lesetja Kganyago.

Upside risks to inflation for 2018 and 2019 include a weaker exchange rate path‚ a higher worldwide oil price‚ and higher average wage growth.

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