November 23, 2017 / 1:37 PM / in 24 days

South Africa holds repo rate, says risks to inflation rising

PRETORIA (Reuters) - South Africa’s central bank kept its benchmark repo rate at 6.75 percent on Thursday, in-line with expectations, citing increased risks to inflation posed by currency weakness, possible credit downgrades and political jostling.

South Africa's Reserve Bank Governor Lesetja Kganyago speaks during a television interview at the World Economic Forum on Africa 2017 meeting in Durban, South Africa, May 4, 2017. REUTERS/Rogan Ward

The bank kept its price-growth forecast for 2017 at 5.3 percent, but upped its forecasts for 2018 and 2019 slightly, citing the weaker exchange rate and rising global oil prices.

“The lead-up to the African National Congress national elective conference and its uncertain outcome is also likely to continue to weigh on the currency,” governor Lesetja Kganyago said, referring to the ruling party’s conference in December to elect a successor for President Jacob Zuma as its head.

S&P Global Ratings and Moody’s are set to review their ratings on Friday, with a one-notch cut of the local-currency rating by both agencies likely to trigger forced selling of up to $12 billion of the country’s bonds.

“Downgrades of domestic currency debt to sub-investment grade could lead to South African government bonds falling out of key indices which require investment grade. Such an event could trigger significant sales of domestic bonds by non-residents,” Kganyago told a media conference.

Kganyago said weak fiscal forecasts in the national budget announced in October had also reduced scope for rate cuts.

“The domestic economic growth outlook remains subdued but positive. Both consumer and business confidence remain low and are also likely to be affected by political developments in December,” he said.

He said although headline inflation had moderated towards the midpoint of its target range of between 3 and 6 percent, risks had increased significantly.

Reporting by Olivia Kumwenda-Mtambo and Alex Winning; Writing by Mfuneko Toyana; Editing by James Macharia

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