The monetary policy committee of the South African Reserve Bank decided on Thursday to raise its repo rate - the rate at which it lends to the country's commercial banks - by 25 basis points, taking it to 5.75%.
Speaking to reporters in Pretoria following the committee's meeting, Reserve Bank governor Gill Marcus said the central bank's monetary policy stance remained supportive of the domestic economy, and that any future moves would be gradual and highly data-dependent.
Marcus reiterated the bank's view that monetary policy should not be seen as the growth engine of the economy.
"The sources of the below-par growth performance are largely outside the realms of monetary policy. In the short term, an improvement in the interaction and relationships between management and labour is essential to foster a climate of trust and confidence, and get South Africa back to work," she said.
Earlier on Thursday, Standard Bank said it expected the bank to hike rates by 25 basis points, especially with inflation running above the bank's target 3% to 6% range. Consumer inflation rose to 6.6% year-on-year in May.
In January, the bank hiked the repo by 50 basis points, having previously left it unchanged at 5% since July 2012.
Inflation forecast raised
On Thursday, Marcus said the bank faced an increasingly difficult dilemma of rising inflation and slowing growth. While the core mandate of the bank was price stability, it had to be mindful of the impact of its actions on economic growth.
The bank has upped its inflation forecast from an expected average of 6.2% to an average 6.3% for 2014, and from 5.8% to 5.9% for 2015.
"Inflation is still expected to return to within the target band during the second quarter of 2015, provided that there are no further shocks to the system."
Marcus said the rand continued to pose an upside risk to the inflation outlook, with the currency having depreciated by 2.6% on a trade-weighted basis since May. The current trend in wage settlements posed a further upside risk, she said, adding: "These pressures are likely to intensify in the current difficult labour relations environment."
Growth outlook deteriorates
At the same time, South Africa's growth outlook has deteriorated, compounded by continued labour disruptions.
"Following a contraction of 0.6% in the first quarter, the outlook for the second quarter is expected to be positive but subdued, particularly in light of weak mining and manufacturing data in May," Marcus said.
The bank's latest forecast - which assumes a speedy resolution of the metalworkers' strike - sees growth coming at 1.7% for 2014, compared to 2.1% previously. The growth forecasts for 2015 and 2016 have been reduced from 3.1% to 2.9% and from 3.4% to 3.2% respectively.
SAnews.gov.za
