The central bank of South Africa indicates that the possibilities for policy easing have diminished

The central bank of South Africa stated on Tuesday that the extremely uncertain global environment had limited the room for monetary policy easing.

The global trade war that U.S. President Donald Trump launched is a major threat to global economic activity, with implications for South Africa, the South African Reserve Bank (SARB) stated in a biennial review of its monetary policy.

Its confidence in the medium-term forecast “has reduced significantly due to heightened global trade tensions and elevated domestic uncertainties,” despite the fact that it anticipates domestic inflation to fall to 3.6% this year from 4.4% last year.

With the most recent reading of 3.2% in February (ZACPIY=ECI), the SARB aims to maintain inflation within the middle of its 3% to 6% target zone.

Citing threats from Trump’s tariffs and a disagreement over South Africa’s national budget that has shown significant divisions within the coalition government, it set its benchmark rate at 7.50% (ZAREPO=ECI) at its most recent policy meeting in March.

Early in April, the domestic yield curve steepened more sharply, “reflecting the global risk-off environment and uncertainties related to the steadiness of the existing coalition,” according to the policy assessment.

The budget’s proposal to increase value-added tax (VAT) by 0.5 percentage points on May 1 and 0.5 percentage points the following year is one of its most controversial features.

According to news reports, the African National Congress, the largest political party, is thinking of doing away with the VAT rises. However, the SARB stated that they could raise headline inflation by 0.2 percentage points annually if they were put into effect.