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Sizeable drop in petrol price expected

May 24 2012 17:31 Sapa

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Johannesburg - The Reserve Bank will maintain current interest rates, governor Gill Marcus said on Thursday.

The repo rate would again remain unchanged at 5.5%, the bank's Monetary Policy Committee (MPC) decided. The prime rate would stay at 9%.

The bank would continue to closely monitor the situation and stood ready to act in either direction, said Marcus.

Since the last meeting of the MPC, global oil prices had moderated as Saudi Arabia increased production.

Oil was trading at over $125 (about R1045) a barrel in February, but had since dropped to below $110 (about R920).

Petrol prices in South Africa increased by a cumulative 99 cents a litre in April and May.

"A sizeable reduction [in the local price] is expected in June," Marcus said. This, despite a weaker rand-dollar exchange rate.

Inflation was forecast to average six percent in the second quarter of 2012.

An average inflation rate of five percent was forecast for 2014, dropping further in the fourth quarter of that year.

However, the situation in Europe remained volatile and unpredictable. Should Europe weaken further, South African exports would be affected.

Investment could also be affected as global risk aversion increased, the MPC said.

"We are very concerned about what is happening, and we are ready to move in either direction," Marcus told reporters in Pretoria.

Marcus was particularly worried about the situation in Europe, one of South Africa's main trading partners, where many countries were battling recession.

She dismissed suggestions that the Greek economy was the main worry.

"This is much bigger than the Greek effect. This is much bigger than talking about one country," she said.

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 Independent Municipal and Allied Trade Union (Imatu) welcomed the SA Reserve Bank's decision on Thursday to keep the repo rate unchanged at five percent.

"While we believe that a further interest rate cut would have given our financially burdened members much-needed economic reprieve; an increase would most certainly have contradicted our president's goals... to create more jobs," said Imatu spokesman Johan Koen.

Imatu had concluded a first round of wage negotiations on Tuesday.

Much of its wage increase demands were based on high food costs, and fuel and electricity inflation. The cost of a basic food basket had increased on average by 16 percent a year for the last five years.

Electricity prices had in effect increased by 82.3% in the past three years.

Transport was also more expensive. Petrol prices had increased on average 11% a year for the last decade. Metrorail's ticket prices had in effect increased by 69% in the past three years.

Imatu was concerned by Reserve Bank governor Gill Marcus's comments earlier on Thursday that inflation was becoming more generalised.

This meant that the bank would need to increase interest rates to ensure inflation remained within the three to six percent target band, meaning less disposable income for workers and the unemployed and slower economic growth.

Imatu was proposing an across-the-board increase of 13% or R2000, whichever is the greater, for all employees falling under the SA Local Government Bargaining Council.

In addition, a minimum wage of R6000 per month should be implemented, and all vacant posts filled.

Local government employers had countered with a 4.5% across the board increase and a proposal to cap current benefits for medical aid and pension fund.

"While Imatu is disappointed with the sluggish pace of the negotiations thus far, we remain committed to reaching a swift conclusion to the process," it said.

"Imatu's approach to these wage negotiations going forward is to achieve an inflation-related increase for our members."

Imatu would be preparing for the second round of negotiations scheduled for May 30 and 31.

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