South Africa’s central bank left its key interest rates unchanged on Thursday in the backdrop of a stronger economic outlook and rising inflationary pressures.

The Monetary Policy Committee unanimously decided to keep the repo rate unchanged at 3.5 percent, the South African Reserve Bank Governor Lesetja Kganyago said in a statement. The decision was in line with economists’ expectations.

The previous change in the rate was a quarter-point cut in July last year.

The projected policy rate path of the bank indicated an increase of 25 basis points in each of the second and fourth quarters of this year.

“The policy stance and repurchase rate level remains highly accommodative, and will remain so even with steps taken to normalize interest rate levels in response to rising inflation,” Kganyago said.

“With inflation expectations remaining stable, and despite inflation risk increasing, the Committee still expects inflation to be contained in 2021, before rising to around the midpoint of the inflation target range in 2022 and 2023.”

The SARB raised the growth forecast for this year to 4.2 percent from 3.8 percent, citing better sectoral growth performances and a more robust terms of trade in the first quarter of this year.

The bank estimated that the economy grew 2.7 percent in the first quarter, which is much stronger than the 0.2 percent contraction seen in the March meeting. In the fourth quarter of last year, the economy expanded 6.3 percent.

Household consumption is expected to be healthy this year, while investment is expected to remain constrained.

GDP growth is seen at 2.3 percent next year and at 2.4 percent in 2023.

While overall risks to the growth outlook are assessed to be balanced, the slow progress on vaccinations, limited energy supply and policy uncertainty continue to pose downside risks, the bank said.

Headline inflation forecast for this year was lowered slightly to 4.2 percent from 4.3 percent. Inflation is projected at 4.4 percent next and 4.5 percent in 2023.

The core inflation forecast for this year was lowered to 3.0 percent from 3.3 percent. The projections for 2022 and 2023 were unchanged at 4.0 percent and 4.3 percent.

The next policy session is on July 22.

The material has been provided by InstaForex Company – www.instaforex.com

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