UPDATE 2-South Africa raises repo rate for first time in 3 years

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* SARB lags behind some EMs in raising rates

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*Economists divided on the outcome of the meeting*

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* 3-2 decision by policy committee (adds more detail from speech)

JOHANNESBURG, Nov 18 (Businesshala) – South Africa’s central bank on Thursday raised its prime lending rate by 25 basis points to 3.75%, the first rate hike in three years in response to rising inflation risks.

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Governor Lesetja Kaganyago said the Monetary Policy Committee (MPC) expected inflation to remain close to the midpoint of its target range during the forecast period, raising inflation risks since the last meeting in September.

“Given the expected trajectory to headline inflation and upside risks, the Committee is of the view that a gradual increase in the repo rate should keep inflation expectations well-balanced and with interest rates,” he told a news conference. It will be enough to control the future path.”

The decision was split 3-2 on the five-man MPC. Economists were divided on the result in a Businesshala poll.

The rate hike comes after the South African Reserve Bank (SARB) flagged inflation risks in a monetary policy document last month.

SARB lags behind some other emerging market central banks, such as Russia and Brazil, in raising rates as domestic inflation has risen more modestly.

The central bank cut its repo rate by 300 basis points to a record low last year to keep the coronavirus-ravaged economy afloat.

But annual inflation has accelerated from January’s 3.2%, well above the midpoint of the bank’s 3%-6% target range, before stabilizing at 5.0% in September and October.

Global producer and food inflation, oil prices and domestic electricity prices were among the main inflation risks cited by SARB on Thursday.

The central bank revised its headline consumer price inflation forecast for 2021 by a little more than 4.4% to 4.5%. The core inflation forecast, which separates food and energy prices, remained unchanged this year at 3.0%.

SARB sees economic growth this year at 5.2% and next year at 1.7%.

The bank’s next monetary policy meeting will be held in January. (Additional reporting by Olivia Kumwenda-Matumbo; Editing by Alex Richardson)

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