Reserve Bank keeps rates unchanged at 6%

The report, by Rebecca Williams and Adam Richardson, says it is important the Reserve Bank knows what a neutral rate would be, so it can gauge how expansionary or contractionary its current monetary policy settings are for the market.

The Hungarian CB meeting, on the other hand, is unlikely to bring any new guidance on monetary policy or rates: inflation has turned down afresh around CEE and Hungarian monthly growth indicators have also weakened; but that said, 2015 will witness almost 3% GDP growth, so at this stage, there is little prospect of the easing cycle being re-opened, added Commerzbank.

Several government policymakers and business leaders have advocated a cut in interest rates to boost economic growth, but the central bank’s priority is to ensure a sustainable reduction in inflation.

Forward guidance as a concept had much to recommend it. The theory was that by communicating their thinking, central bankers would allow markets to more accurately price in the trajectory of interest rate hikes and through this, smooth the path to rate normalization.

This move was described by many economists as premature and problematic, especially in light of South Africa’s shrinking economy.

The decision comes at the same time that Statistics South Africa (Stats SA) released the figures for Consumer Price Index (CPI) showing that the CPI slowed to 4.6 percent in August from five percent in July.

The Fed has two more chances to hike this year, at meetings in October and December. Kganyago said the rand had “already depreciated significantly against the advanced economy currencies.and is still likely to react further to the commencement of U.S. monetary policy tightening”.

The outlook for Trinidad & Tobago’s economy has deteriorated, the bank said, adding that provisional estimates show a contraction of close to 2 percent in the first half of this year as continued shortfalls in natural gas production led to a decline in the energy sector by an estimated 3.5 percent in the first half of the year. “The fact that the rand appreciated in response to the Fed decision suggests that some depreciation is likely when U.S. rates are increased”. Of the world’s developed regions, growth in the euro area picked up slightly in the second quarter of 2015. The reserve bank warned of “upside risks to the inflation outlook” mainly rising from the exchange rate.

Till July, the repo rate was reduced 75 basis points in three stages, matching the reduction in inflation.

Kganyago said that food prices remained of concern as a drought is expected to feed through into consumer prices in coming months.

These risks included spillbacks associated with an abrupt slowdown in the Chinese economy and a surprise devaluation of the renminbi, both of which contributed to the US Fed keeping its policy rate unchanged at its September 2015 meeting.