See More

Interest rates on hold at 5%

Nov 22 2012 15:19 Reuters

Related Articles

Economist warns on weaker rand

Rates no weapon against unemployment

South Africans borrow to buy food

SA doesn’t impress agencies

SA unemployment on the rise

Prepare to pay more for food

Pretoria - The South African Reserve Bank (Sarb) left its benchmark repo rate unchanged at 5.0% on Thursday despite acknowledging that the economy is in stress, citing a deterioration in the inflation outlook.

All 22 economists polled by Reuters last week said the Reserve Bank's monetary policy committee (MPC) would leave rates unchanged at 40-year lows, with nearly half expecting the next move most likely in late 2013 or the beginning of 2014.

The  bank has left rates unchanged at all its policy meetings this year except for July, when it decided on a surprise cut of 50 basis points.

The prime lending rate stays at 8.5%.

The Sarb trimmed its 2012 growth forecast to 2.6% in September from 2.7%, citing weak global growth and disruptions to mining output during wage strikes that began in August and have only recently been resolved.

Consumer inflation also accelerated to 5.6% year-on-year in October from 5.5% in September, edging towards the top end of the Sarb's 3% to 6% target band.

Although the monetary policy committee (MPC) opted to leave rates unchanged in September after a surprise 50 basis-point cut in July, Reserve Bank governor Gill Marcus said another cut had been discussed.

She has since curbed expectations, however, by stressing that a cut was not automatic, and a sharply weaker currency since the September policy meeting will have raised the red flag on inflation.

Marcus said on Thursday that the global economic outlook had deteriorated since the last MPC meeting. The prospects for emerging markets had also deteriorated in the last months, she said.

"The inflation forecast of the bank reflects a deterioration in inflation outlook for 2013 compared with the previous forecast.

"Inflation is now expected to average 5.6% in the final quarter of 2012 and 5.6% for the year. It is expected to average 5.5% in 2013 and 5% in 2014 with a peak of 5.7% expected in the first quarter of 2013," Marcus said.

Rand poses inflation risk  

She said primarily the rand had been influenced by external factors, but more recently domestic factors such as the mining unrest have had an impact on the local unit.

The rand had depreciated by 6.7% against the dollar since the last policy meeting, Marcus said.

"The rand is expected to remain sensitive to both unfolding domestic economic and political developments in addition to global risk perception.

"However, the rand is expected to remain volatile as subject to overshooting."

On domestic growth, Marcus said the outlook had deteriorated, largely as a result of the continued global slowdown and aggravated by domestic events.

"Mining output has declined significantly as a result of work stoppages and there are likely to be longer-term implications for output, export and employment as the mines adjust to higher labour costs.

"In the light of these factors, the MPC is of the view that the current accommodative stance remains appropriate and has therefore decided to keep the repurchase rate unchanged at 5.0% per annum," Marcus said.

She added the MPC will monitor developments closely, and will not hesitate to act in a manner consistent with its mandate.

Follow Fin24 on Twitter, Facebook, Google+ and Pinterest.

gill marcus  |  interest rates  |  inflation


Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Add your comment
Comment 0 characters remaining

Company Snapshot

We're talking about:


Johannesburg has been selected to host the Global Entrepreneurship Congress in 2017. "[The congress] will ensure that small business development remains firmly on the national agenda and the radar screen of all stakeholders, the Small Business Development minister said.

The Fast and Furious R40 million

With the Fast and the Furious 7 hitting South African cinema’s this April, all eyes are on the cars and we’re in for a treat!


Luxury living

This is the most expensive burger in the world!
Exclusive food items that WILL break the bank
Top 10 most expensive homes in the world
You can permanently live on a ship and sail the world!

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...

Voting Booth

How will you manage Vodacom’s price hike for contracts?

Previous results · Suggest a vote