By www.CentralBankNews.info
South Africa’s central bank held its benchmark repurchase rate steady at 5.0 percent, as expected, but cut its growth forecast and appealed for price and wage restraint to avoid higher inflation.
The South African Reserve Bank (SARB), which cut rates by 50 basis points in 2012, painted a bleak picture, saying domestic growth prospects were fragile, consumer confidence was low, the mining sector was plagued by continuing disruptions, the supply of electricity was constrained and the global economic environment was weak.
South Africa’s rand currency has been falling in value, down by some 4.6 percent against the U.S. dollar since late March, as the confidence of investors since mid-2012 has been undermined by fraught labor relations and high wage demands, especially in the mining sector, and worries over a growing balance of payments deficit due lower commodity prices and mining exports.
“The current level of the exchange rate, if sustained, poses a significant upside risk to the inflation outlook,” the SARB said in a statement.
The central bank cut its 2013 growth forecast to 2.4 percent from 2.7 percent and to 3.5 percent from 3.7 percent for 2014. In 2012 South Africa’s Gross Domestic Product grew by 2.5 percent.
By 2015, SARB expects economic growth to accelerate to 3.8 percent, with the negative output gap starting to close that year after widening this year.
In the fourth quarter of 2012, South Africa’s GDP expanded by 2.1 percent from the third quarter for annual growth of 2.5 percent, up from 2.3 percent.