Pretoria - The South African Reserve Bank left the repo rate at historical lows on Wednesday, saying concerns about weak growth were offset by a deterioration in the inflation outlook caused a sharply weaker currency.
However, governor Gill Marcus made clear she would not be stepping in to stem a 9% depreciation in the rand this year, disappointing some analysts who had been expecting a more aggressive stance to defend the currency.
The rand fell to a four-year low of R9.3075/$ an hour after the decision from R9.2280 before Marcus announced the outcome of the bank's three-day monetary policy meeting, at which she said there was no discussion of increasing rates from 5.0%.
"There was a total lack of talking up of the rand, which surprised us and the market," Nomura economist Peter Attard Montalto said.
All 21 economists polled by Reuters last week forecast the repo rate unchanged, with the majority seeing it staying that way for the rest of the year.
Marcus also stressed the benefits to the manufacturing sector of a weaker rand - pro-growth comments that will be music to the ears of President Jacob Zuma and the ruling African National Congress as it heads towards an election in 12 months' time.
The bank has kept the repo rate on hold since the last 50 basis point cut last July, balancing the need to nurture a sluggish recovery from a 2009 recession with price pressures emanating from a weaker currency.
Earlier this month, Marcus admitted the bank's ability to further loosen policy was constrained by the need to keep inflation within a 3% to 6% target band.
"The Monetary Policy Committee continues to assess the balance of risks to the inflation outlook to be on the upside, mainly due to the exchange rate and wage pressures," Marcus told a news conference.
The rand has been heavily sold this year, weighed down by a yawning currency account deficit, wage-related strikes in the farming and mining sectors, and fears for the stability of the national grid.
Figures released two hours before Marcus' decision showed consumer inflation accelerated above expectations to 5.9% year-on-year in February from 5.4% in January.
Growth prospects also remained subdued, Marcus said, lifting the bank's forecast for 2013 only slightly to 2.7% this year, in line with the Treasury.
"Upside inflation risks will prevent a cut, and at the same time, economic growth is likely to remain too weak to be considering rates hikes anytime soon," Renaissance Capital economist Elna Moolman said.
Government bond yields rose after Marcus's speech, with the yield on the 2026 paper climbing to 7.5% from 7.485% while that for the 2015 bond rose to 5.52% from 5.475%.
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