Johannesburg - The Reserve Bank will maintain current interest rates, governor Gill Marcus said on Thursday.
It would leave the repo rate unchanged at 5.5% once again.
However, the bank would continue to closely monitor the situation and stood ready to act in either direction, she said.
The prime rate would stay at 9%.
This was the ninth consecutive meeting where the repo
rate remained unchanged, after it was reduced by 650 basis points
between mid-2008 and November 2010.
It keeps the rate at its lowest level in over 30 years.
The decision followed a meeting of the bank's monetary policy committee (MPC) in Pretoria.
"The inflation forecast of the bank is lower over the near
term than at the time of the previous meeting of the MPC.
"Inflation is seen to have peaked in the first quarter of 2012 at
6.1%, compared with the previous forecast where the
peaking of 6.5 in the second quarter was anticipated.
"Inflation is expected to average 6% in the second
quarter of 2012, and thereafter to follow a gradually declining
trend within the target range.
"The forecast period has been extended to the end of 2014,
and inflation is expected to average 6% in 2012, 5.5% in 2013, 5% in 2014, and 4.7% in the final
quarter of that year."
"The improved near term forecast is due to
lower-than-expected recent inflation outcomes, which lowered the
starting point of the new forecast. The forecast for core
inflation continues to show a moderate upward trend in the short
to medium term.
"This measure is expected to peak at an average of 5.5% in the second quarter of 2013, marginally higher than in
the previous forecast, before moderating and averaging 4.5% in the final quarter of 2014."
"GDP growth at 2.9% for 2012 and 3.9% for
2013. Growth is expected to average 4.1% in 2014. The
output gap of 3.5% is only expected to begin to contract
during the course of 2013.
"However, the possible contagion effects from a further slow
down in Europe will impact on domestic growth through the trade
channel imparting a downside risk to this forecast.
"The bank's composite leading business cycle indicator has
been increasing slowly consistent with the uncertain economic
"The turbulence in the financial markets has caused the rand
to depreciate but the associated risk to the inflation outlook
is off set to some extent by the lower international oil prices
and depends on how sustained the depreciation will be.
"The extent to which the rand depreciation feeds into the
inflation outlook depends on the extent and duration of the
moves. This in turn is likely to be highly dependent on the
timing and nature of the developments in the eurozone and
therefore a protracted period of exchange rate volatility is
"In the absence of a speedy resolution to the crisis, the
rand is likely to remain at current levels or even weaken
further in the event of a disorderly unravelling of the eurozone
"Under such circumstances the unfavourable impact on
inflation could be ameliorated to some extent by offsetting
movements in international oil prices. However, the exchange
rate has re-emerged as an upside risk to the inflation outlook."