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Repo rate to remain unchanged at 5.75%

The repo rate is to remain unchanged at 5.75% per annum, the Reserve Bank said on Thursday, 21 May 2015.
© KaYann - Fotolia.com
"The Monetary Policy Committee [MPC] has decided to keep the repurchase rate unchanged at this meeting," said Reserve Bank Governor Lesetja Kganyago.

The repo rate has remained unchanged since a 25 basis points rate hike in July 2014.

The governor said four members of the committee favoured an unchanged stance while two members of the committee favoured a 25 basis point increase.

However, the MPC noted that the deteriorating inflation outlook suggests that this unchanged stance cannot be maintained indefinitely.

"The MPC will continue to closely monitor the evolution of inflation expectations and other factors that could undermine the longer term inflation outlook and stands ready to act when appropriate," said Kganyago.

The central bank said its inflation forecast has changed since its last meeting with inflation now expected to average 4.9% in 2015 with a first quarter low of 4.1%

A temporary breach of the upper end of the inflation target band is still expected during the first quarter of 2016 to peak at 6.8% and to decline to 6% by the second quarter of that year.

The bank said headline inflation forecast assumes electricity price increases of 13% from July 2015 and July 2016 in line with the original multi-year price determination process of the National Energy Regulator of South Africa (Nersa).

However, the application by Eskom for a further 12.6% increase from 1 July 2015 will be decided at the end of June.

"Given the uncertainty regarding this decision, both in terms of quantum and timing of implementation, it has not been incorporated into the forecast, but poses a significant upside risk. Should Nersa fully accede to the Eskom request, a higher peak of headline inflation as well as a more extended breach of the target can be expected," explained the Governor.

The bank noted that the domestic growth outlook remains weak amid continued electricity supply constraints and low and declining levels of business and consumer confidence.

The bank's forecast for Gross Domestic Product growth is marginally down from the previous forecast, growth is expected to average 2.1% and 2.2 %in 2015 and 2016, and to increase to 2.7% in 2017.

Additionally, consumption expenditure by households is expected to remain relatively subdued, as higher personal tax rates take effect and the benefits of lower petrol prices dissipate.

Of what is of concern to the MPC is the trends in remuneration with average wage and salary growth has been in excess of inflation for some time.

The main risks to the outlook remain electricity tariff increases, the exchange rate and wage settlements, noted the bank.

"Significant additional electricity tariff increases are likely to cause inflation to diverge significantly from the target range for a more extended period than our baseline forecast suggests."
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SOURCE

SAnews.gov.za
SAnews.gov.za is a South African government news service, published by the Government Communication and Information System (GCIS). SAnews.gov.za (formerly BuaNews) was established to provide quick and easy access to articles and feature stories aimed at keeping the public informed about the implementation of government mandates.
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