South Africa: Central Bank to redraft adverse risk scenario for next rate-setting meeting

South Africa's central bank will redraft its risk scenarios for its next rate-setting policy meeting as the widening Middle East conflict pushes up oil prices, the country's central bank governor told Reuters.

The central bank is slated to decide on March 26 on interest rates after keeping its main lending rate unchanged in a split decision at 6.75% in late January, citing at the time that policy makers wanted to see inflation expectations fall further.

"We had a our baseline (in the January meeting) and we had an optimistic scenario and an adverse scenario," said Lesetja Kganyago, saying the latter had assumed average oil price for the year to reach $75 per barrel and the rand to weaken to 18.50 to the dollar.

Exchange rate

Now the previous adverse scenario, he said, "is gone - it was in the in the past ... we will come up with a completely new one."

While the Middle East crisis set off by Israel and Washington's bombing of Iran has lifted Brent crude futures to more than $94 per barrel this week, the rand weakened to 16.82 to the dollar.

Kganyago said a 10% move in the exchange rate would have a much stronger impact on inflation in South Africa than a similar jump in oil prices.

"Yes, it's the adverse scenario, but it is not playing out as we had feared," Kganyago said, adding that policy makers would only get concerned once they saw the impact of the exchange rate filter through to prices.

"The call that as a policy maker you must make is - is this transitory, or is it persistent? And you only respond to the persistent, not to the transitory - and that is not an easy call to make."