South Africa kept its repurchase rate unchanged at 6.5% per annum, saying risks to inflation outlook have titled to the upside.
The South African Reserve Bank said annual inflation rose to 4.5% in April from a seven-year low of 3.8% in March due to the impact of the value-added tax increase and other levies. Core inflation, which excludes food, fuel and electricity, rose to 4.5% from 4.1%.
The central bank expects headline inflation to reach 4.9% and 5.2% in 2018 and 2019, respectively, unchanged from its prior estimates. Inflation forecast for 2020 was raised to 5.2% from 5.1%.
The central bank said inflation is expected to peak at 5.5% in the first quarter of 2019 before the impact of the value-added tax increase dissipates.
Core inflation is estimated to come in at 4.5% for 2018, down from a prior estimate of 4.6%, and at 5.1% in 2019 and 2020, up from a prior projection of 4.9% for both years.
Rising global oil prices and the South African rand's weakness against the U.S. dollar have contributed to the upside risks to the central bank's inflation outlook.
The main driver of the recent rand weakness was U.S. 10-year Treasury yields exceeding 3.0% for the first time since July 2011. As a result, a number of emerging markets have experienced capital outflows and currency depreciation.
The South African central bank reduced its repurchase rate by 25 basis points to 6.5% in March.
