South Africa bank raises key rate to six-year high
South Africa increased its benchmark interest rate to a level last seen six years ago Thursday as it battles to avoid a credit downgrade in the face of slow growth and a weak currency.
The country’s central bank raised its repurchase rate by 25 basis points to 7.0 percent, a level last seen in March 2010.
The governor of the Reserve Bank, Lesetja Kganyago said the monetary policy committee “remained concerned about the weak growth outlook amid negative business consumer confidence”.
Kganyago also cited upside risks to the inflation forecast, which in January breached the 6.0 percent ceiling to 6.2 percent.
South Afria’s economic challenges have been compounded by a drought which has resulted in higher food prices.
“A more protracted drought, combined with a weaker exchange rate and restocking of herds, may keep food price inflation elevated for a longer period than currently forecast,” said Kganyago.
Africa’s second-largest economy is fighting to avoid a credit rating downgrade to junk status, which would make borrowing more costly as many investment funds would no longer be able to subscribe to South African debt.
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