By Kopano Gumbi
JOHANNESBURG (Reuters) – South Africa’s central bank said on Tuesday that the scope for monetary policy easing had narrowed because of the highly uncertain global backdrop.
In a biannual review of its monetary policy, the South African Reserve Bank (SARB) said the global trade war started by U.S. President Donald Trump was a serious threat to global economic activity, with spillovers expected for South Africa.
Although it expects domestic inflation to slow to 3.6% this year from 4.4% last year, its confidence about the medium-term outlook “has reduced significantly due to heightened global trade tensions and elevated domestic uncertainties”.
The SARB tries to keep inflation around the midpoint of its 3% to 6% target band, with the latest reading at 3.2% in February.
At its last policy meeting in March it held its key rate at 7.50%, citing risks from Trump’s tariffs and a dispute over South Africa’s national budget that has exposed deep rifts in the coalition government.
The policy review said a steepening in the domestic yield curve had become more pronounced in early April, “reflecting the global risk-off environment and uncertainties related to the steadiness of the existing coalition”.
One of the most contentious elements in the budget is a proposal to raise value-added tax (VAT) by 0.5 percentage points on May 1 and 0.5 percentage points next year.
News reports say the biggest political party, the African National Congress, is considering scrapping the VAT increases. But if implemented the SARB said they could add 0.2 percentage points to headline inflation per year.
(Reporting by Kopano Gumbi; Editing by Alexander Winning)
