MPC keeps repo rate at 5.5%

"The MPC has therefore decided to keep the repurchase rate unchanged at 5.5% per annum. At this stage there are no signs of incipient excess demand in the economy, and unless there are significant unexpected changes in the global or domestic outlook the monetary policy stance is expected to remain relatively stable for some time," Reserve Bank Governor Gill Marcus said on Thursday, 20 January 2011.

This decision follows the MPC's first interest rate two-day meeting of 2011.

The Governor said the MPC had taken note of the improving growth outlook for the economy, adding that it is of the view that the domestic consumption recovery will be sustained.

"While there are increasing risks to the inflation outlook, these emanate primarily from external cost-push factors, and inflation is expected to remain within the target range until the end of the forecast period," she said.

Last November, the Reserve Bank slashed the repo rate by 50 basis points reducing it to its lowest in 30 years. Since December 2008, the repo rate has been cut by 650 basis points.

The MPC's decision to keep rates unchanged come as no surprise to analysts. Prior to Thursday's decision, analysts at Absa Capital said global food prices were likely to feature more strongly in the deliberations of the MPC.

The central bank has also revised upwards its forecast for CPI since its last meeting in November 2010 to average 4.6% in 2011 and 5.3% next year. The adjustment is due to revised assumptions of the international oil price.

The economic outlook globally said the Reserve Bank remains uncertain but that there appears to be increasing optimism, although weak, will be sustained with emerging economies continuing to outperform advanced economies.

The Reserve Bank also took note of the volatile strength of the rand since its last meeting with issues such as developments in the Euro/Dollar exchange rate and capital inflows into emerging markets. Gross Domestic Product domestically remains subdued, she said.

Domestic GDP growth remains subdued with the bank's forecast adjusted marginally. The Reserve Bank expects growth to average 3.4% this year with the forecast for 2012 remaining unchanged at 3.6%.

Marcus said there appeared to be stabilisation in the labour market in the third quarter with unemployment levels remaining high at 25.3%.

Asked about whether the Bank was concerned about private sector wage increases, Marcus said if the country wants growth this should be a co-ordinated matter between business and labour.