Reserve Bank leaves repo rate unchanged
Inflation to remain high - Marcus
SOUTH Africa's Reserve Bank left its repo rate unchanged at 5.5 percent yesterday, with concerns about a slowing economy offsetting the pressures from inflation, which is likely to stay outside its target band for longer than expected.
SA Reserve Bank governor Gill Marcus said yesterday that the bank has left the repo rate unchanged at 5.5 percent. The prime rate would stay at nine percent.
“The MPC (Monetary Policy Committee) maintains a preference for a stable interest rate environment given the conflicting pressures on monetary policy at this stage,” Marcus said.
The MPC would continue to monitor domestic and global economic and financial developments and the risks to the outlook, she said.
“It remains ready to act appropriately to ensure the attainment of the inflation target over the medium term while being supportive of the domestic economy.”
The SARB inflation target of between three and six percent was breached in November.
“Inflation is now expected to remain above the upper end of the target range for a more extended period,” Marcus said.
The MPC had revised its inflation forecast upward and now expected it to remain outside the upper end of the target range for the whole of 2012.
Marcus said inflation should peak at around 6.6 percent in the second quarter of this year and return to within the target range in the first quarter of 2013. “Inflation is expected to measure 5.5 percent in the final quarter of 2013.”
The MPC had revised its economic growth forecasts down from its meeting in November due to downward revisions of global growth.
“The outlook for domestic economic growth remains subdued,” Marcus said. “The primary reason for the worsening domestic growth outlook is the risk of contagion from the persistent crisis in Europe, which shows no sign of resolution.”
The annual real growth rate for 2011 was estimated to be around 3.1 percent.
“Growth in 2012 is expected to average 2.8 percent compared with 3.2 percent in the previous forecast, while the forecast for growth in 2013 has been revised down from 4.2 percent to 3.8 percent.”
Holding the repo rate at 5.5 percent was in line with mar- ket expectations, with all 21 economists polled by Bloomberg expecting rates to remain unchanged.
Treasury economist with Eskom Mandla Maleka said: “It was in line with expectations. Clearly the Reserve Bank is now considering other pressing concerns in the economy, in particular, growth prospects.
“Even though inflation was out of target and may remain above target, they are taking into consideration the fact that global growth prospects remained mired on the weak side, which means our exports may be hampered, in which case growth prospects will be weak. If conditions continue, the MPC may debate the issue of a cut if the country does not come out of the weak domestic demand.”
Nedbank chief economist Dennis Dykes added: “It seemed as though there was a bit more of a hawkish undertone to the message. Obviously, the Reserve Bank is a bit uncomfortable with inflation being above the target zone.
“I think it was the right sort of decision, from our perspective anyway – both the global and domestic economic situation is still very, very uncertain. And with inflation projected to dip later next year, it seems like a reasonable decision under the circumstances.”