The bank lowered its main policy rate to a record 3.5% last year to cushion the impact of the COVID-19 pandemic and left it on hold for the past seven meetings to support a recovery economic.

But a better-than-expected recovery in the first half of 2021 suggests that “underlying price pressures may be greater than initially thought,” the South African Reserve Bank (SARB) said in its review of monetary policy.

“With inflation around the target midpoint and the output gap closing, the repo rate needs to adjust to its estimated neutral level over the medium term, to reduce stimulus and contain inflation,” he added. “Delaying take-off could see monetary policy authorities catch up with inflation, potentially destabilizing relatively well-anchored inflation expectations.”

By keeping rates unchanged for so long, the SARB has drifted away from other emerging market central banks like Russia and Brazil, which have tightened policies significantly this year.

Among the risks to the medium-term inflation outlook, which it said had risen sharply, the SARB cited high producer prices, continued supply constraints, and high food and fuel prices. oil.

The bank added that rebased gross domestic product data from the statistics agency showed economic activity had largely returned to pre-pandemic levels, although on a sectoral basis the recovery was uneven. .

(Report by Alexander Winning, editing by Olivia Kumwenda-Mtambo, editing by William Maclean)


About The Author

Related Posts

Leave a Reply

Your email address will not be published.