Excerpt from the statement by the South African Reserve Bank:
The Monetary Policy Committee assesses the risks to the inflation outlook to be on the upside, mainly due to exchange rate and wage pressures. The decision of the Fed to delay tapering has provided a temporary reprieve to the exchange rate. However, the continued uncertainty relating to the timing of the inevitable slowdown in bond purchases and its data dependent nature, imply that emerging market currencies, including the rand, are likely to experience a protracted period of volatility. In the short run these developments may have moderated the risk to inflation from the exchange rate, but medium to longer term risks remain, which will be assessed on an ongoing basis
The MPC remains mindful of the conflicting policy choices that it faces. The breach of the upper end of the inflation target is expected to be temporary, but the longer term trajectory is uncomfortably close to the upper end of the target range. At the same time, there are still no significant demand side pressures in the economy and consumption expenditure growth is subdued. The output gap continues to widen, and the employment data show that there is very little net employment creation in the economy, while employment in the manufacturing and mining sectors has been declining. Consumers remain under pressure with persistently high debt to disposable income ratios, further exacerbated by the rising cost of petrol and other administered prices.
Currently, a sustained breach of the inflation target is not our central forecast, but the upside risks to the inflation outlook require careful monitoring. Should the risks to the medium-term inflation outlook deteriorate significantly the MPC will not hesitate to take appropriate action in order to maintain the integrity of the inflation targeting framework and to anchor inflation expectations at a lower level.