In a biannual review of its monetary policy, the SA Reserve Bank (SARB) said the global trade war started by US President Donald Trump was a serious threat to global economic activity, with spillovers expected for SA.

Although it expects domestic inflation to slow to 3.6% this year from 4.4% last year, its confidence about the medium-term outlook "has reduced significantly due to heightened global trade tensions and elevated domestic uncertainties".

The SARB tries to keep inflation around the midpoint of its 3% to 6% target band, with the latest reading at 3.2% in February.

At its last policy meeting in March it held its key rate at 7.50% , citing risks from Trump's tariffs and a dispute over SA's national budget that has exposed deep rifts in the coalition government.

The policy review said a steepening in the domestic yield curve had become more pronounced in early April, "reflecting the global risk-off environment and uncertainties related to the steadiness of the existing coalition".

One of the most contentious elements in the budget is a proposal to raise value-added tax  by 0.5 percentage points on May 1 and 0.5 percentage points next year.

News reports say the biggest political party, the African National Congress, is considering scrapping the VAT increases. But if implemented the SARB said they could add 0.2 percentage points to headline inflation per year.

--Reuters--