PRETORIA, July 23 (Reuters) - South Africa's central bank surprised investors and economists by keeping its main lending rate unchanged on Thursday, saying its policy was restrictive enough to return inflation to its target within two years.
Analysts said the bank's tone was much less hawkish than expected, after data showed this week that inflation had surged to its highest in two years last month.
The rand currency plunged after the rate decision was announced, trading down over 2% against the dollar on the day at one point.
The South African Reserve Bank's policy rate stays at 7%. Four Monetary Policy Committee members supported the decision to keep it at that level, while two favoured an increase of 25 basis points.
TIGHT ENOUGH
At 5% year on year in June, inflation is currently 2 percentage points above the bank's 3% target.
But Governor Lesetja Kganyago said it would be back within the bank's 1-percentage-point tolerance band next year and "bang on target" in 2028.
He said for now the level of the policy rate was tight enough.
"We are in a difficult bind. The worst position for a central banker is to have rising inflation and weak demand," Kganyago said.
The central bank revised down its inflation forecast for this year to 4.0% from 4.4% previously and revised up its 2026 economic growth forecast to 1.4% from 1.2%.
ECONOMISTS DIVERGE ON INTEREST RATE PATH
Sixteen out of 25 economists polled by Reuters had predicted a rate hike on Thursday, with nine expecting no change.
Some analysts still expect a rate hike later this year, despite bank modelling on Thursday showing rates broadly steady through the end of 2026.
Citi economist Gina Schoeman said she saw evidence of second-round inflation effects and predicted a 25-basis-point increase at the next meeting in September.
Andrew Matheny at Goldman Sachs said the rate hike at the last meeting in May, the first hike in three years, had given the bank a sufficient buffer to adopt a wait-and-see approach this time.
He forecast interest rates would now stay on hold and policy easing resume early next year.
Reporting by Kopano Gumbi, Anathi Madubela, Nilutpal Timsina and Sfundo Parakozov; Editing by Alexander Winning and Deepa Babington
Source: Reuters