Central bank raises interest rates to curb inflation risk

folarin okunola

November 20, 2015 9:40 AM

The bank said domestic economic growth prospects remained subdued but that it did not expect the economy to go into recession.

A South African child holds a 50 rand note in a file photo.

South Africa's Reserve Bank lifted interest rates by 25 basis points to 6.25 percent on Thursday, in a decision viewed as a borderline call, saying failure to act now could raise inflation risks in the future.

The decision to keep rates went against expectations of Reuters poll last week, where 21 of the 35 economists polled expected the bank to keep rates unchanged.

The bank's six person policy committee voted 4 to 2 in favour of raising rates by 25 basis points, adding that it did not consider a 50 basis point hike.

"Monetary policy actions will continue to focus on anchoring inflation within the target range while remaining sensitive, to the extent possible, to the fragile state of the economy," Governor Lesetja Kganyago told a news conference.

The Reserve Bank expects inflation to average 4.6 percent in 2015 compared to a previous forecast of 4.7 percent, but sees consumer prices breaching the bank's upper target of 6 percent for two consecutive quarters in 2016.

"In the absence of demand pressures, the MPC had to decide whether to act now or later," Governor Kganyago said.

Kganyago added that any future interest rate move would be highly data dependent while also warning that a rate increase in U.S., widely expected to come in December, had not been fully priced into South African markets.

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