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Repo rate unchanged at 5.5%

The repo rate will remain unchanged at 5.5%, the Reserve Bank said on Thursday, 10 November.The repo rate will remain unchanged at 5.5%, the Reserve Bank said on Thursday, 10 November.

"The MPC has decided to keep the repurchase rate unchanged at 5.5% per annum," Governor Gill Marcus said. The decision had been unanimous.

Speaking at the last Monetary Policy Committee (MPC) meeting for the year, Governor Gill Marcus said South Africa's economic recovery remains hesitant with a deterioration of the inflation outlook. Inflation is set to breach the 6% target range in 2012.

Standard Bank in its research note earlier on Thursday expected the central bank to reduce the repo rate. "In our view, the long-running Eurozone debt crisis has raised the possibility of a recession in Europe, which increases the risks to the SA economy. The impact could be felt through the traditional trade channel, but there is also the significant risk posed by a potential reduction in lending by European banks that supply the bulk of international lending. We thus view the downside risks to growth as being substantial, and we expect the MPC to cut the repo rate accordingly," said the bank.

There had been no interest rate cut this year. The last time the central bank cut the repo rate was in November 2010 - cutting it to its lowest in a period of 30 years.

Nedbank expected the central bank to apply a wait-and see approach by leaving rates unchanged well into 2012.

Earlier this week, Investment Solutions economist Chris Hart said it was likely that the Reserve Bank will keep the repo rate on hold for the whole of 2012.

Commenting on the MPC's decision, Business Unity South Africa said the decision was not unexpected. "While BUSA believes that the SARB, in most of its MPC statement today, itself made a good case for a further reduction in interest rates, BUSA accepts that there is room for difference of opinion as to whether it should happen now or later."

According to the inflation forecast of the central bank, inflation is expected to breach the target range in the last quarter of 2011 and to peak at around 6.3% in the first quarter of 2012 before declining gradually and returning to the range in the final quarter of 2012.

Inflation is expected to measure 5.2% in the final quarter of 2013. According to the bank food prices continue to pose an upside risk to the inflation outlook with a further acceleration of food inflation expected in the near term.

Marcus said the global growth outlook continues to be characterised by heightened uncertainty with weak growth and declining consumer confidence in several advanced economies while growth in many emerging markets has moderated over the year.

"The exchange rate of the rand continues to be subject to changes in risk aversion in global financial markets," she said, adding that the currency has depreciated by around 18.6% since the beginning of the year.

The bank said uncertainty related to the rand conveys an upside risk to the inflation outlook. "Unless the rand continues on a depreciating trend, the impact is likely to be relatively limited and should dissipate in the short to medium term."

The central bank has also revised its GDP forecast to average 3% compared to its previous forecast of 3.2% while the growth forecasts for 2012 and 2013 have been revised down to 3.2 % and 4.2 % from 3.6 % and 4.4 % respectively. "The downward revision is a result of revised assumptions primarily of international commodity prices and global growth," said the MPC.

International oil prices have remained relatively stable and currently there is a small over-recovery on the domestic petrol price which if maintained could offer relief to motorists after four consecutive months on price hikes resulting in domestic petrol prices being at the highest levels ever.

The committee had discussed the decision by rating agency Moody's Investor Services revision of the country's A3 rating outlook from stable to negative. The rating agency cited slower economic growth than what was previously expected as well a growing political risk to low budget deficits.

"It was discussed. We are concerned about their approach," said the Governor.

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.

Go to: http://www.sanews.gov.za
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