KEY POINTS – South African central bank comments on rate decision

PRETORIA, May 23 (Reuters) – Remarks by South African Reserve Bank (SARB) Governor Lesetja Kganyago on Thursday announced the central bank's latest decision on its key rate.

INFLATION

"Recent monthly inflation results have remained near the mid-point of the inflation target range, in part because of weak demand and positive inflation data. The medium-term outlook for inflation has moderated slightly. "

"The inflation forecast generated by the SARB quarterly projection (QPM) model has improved since the last MBM. Headline inflation is expected to average 4.5% in 2019 (compared with 4.8% to 5.1% in 2020 (vs. 5.3% previously) and 4.6% in 2021 (compared with 4% in 7% previously)). 5.5% in the first quarter of 2020 and stand at 4.5% in the last two quarters of 2021. "

"The main factors of the forecast are a lower starting point for the inflation of food and services, and revised badumptions on oil prices."

"Moderate rental prices, unit labor costs and inflation expectations also help to reduce core inflation over the medium term. The underlying inflation forecast is below 4.5% in 2019 (up from 4.8%), 4.8% in 2020 (up from 4.9%) and 4.5% in 2021. "

GROWTH

"Based on recent short-term indicators and negative growth in the mining and manufacturing sectors, GDP is expected to contract in the first quarter of 2019."

"The SARB now forecasts that GDP growth for 2019 will average 1.0% (down from 1.3% in March). Forecasts for 2020 and 2021 were unchanged at 1.8% and 2.0% respectively. "

"The short-term growth outlook is constrained by the larger than expected slowdown in the first quarter, weak business and consumer confidence, as well as the growing pressure on household disposable income."

"Low corporate confidence, potential electricity supply constraints, and high levels of indebtedness by some state-owned companies will continue to limit investment opportunities."

"The escalation of trade tensions could have a significant impact on global trade, with negative consequences for South Africa as a small, open economy."

RAND

"The rand has benefited from the sentiment generated by riskier badets, but will continue to be affected by specific factors such as domestic growth prospects and political parameters."

"The implied starting point of the rand is 14.40 rand against the US dollar, against 14.00 rand at the previous meeting. At these levels, the QPM estimates that the rand is slightly undervalued. (Tanisha Heiberg Report, Olivia Kumwenda-Mtambo Edition)