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Rates on hold at 5%

Jan 24 2013 15:21
Cape Town - The South African Reserve Bank (Sarb) left its benchmark interest rate unchanged at 5.0% on Thursday, citing concerns about rising food prices and a depreciating rand exchange rate in a period of slowing growth.

All 23 economists polled by Reuters last week forecast the Reserve Bank's monetary policy committee would leave rates unchanged at 40-year lows, with 10 economists expecting the next move to be a 50 basis-point hike in 2014.

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

The prime lending rate stays at 8.5%.

Sarb governor Gill Marcus said the bank expects gross domestic product to be about 3.8% in 2014, compared with 3.6% previously.

She said the risk to the inflation outlook remains on the upside, in large part due to continued exchange rate and wage cost pressures.

The bank is expecting inflation to average 5.8% in 2013.

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

"Having averaged 5.6% in 2012, inflation is now expected to average 5.8% in 2013 and 5.2% in 2014, compared with previous forecasts of 5.5% and 5.0% for the respective years."

On domestic growth, she said economic growth remains fragile and below potential, following an annualised growth rate of 1.2% in the third quarter of 2012 and an estimated growth rate of about 2.5% for the year.
"A similar outcome is expected in 2013 with growth of 2.6% forecast, revised down from 2.9% in the previous forecast."

Marcus said the exchange rate and wage hikes still pose risks.

"The rand exchange rate continues to pose an upside risk to the inflation outlook.

"The exchange rate has been impacted by the widening deficit on the current account on the balance of payments in 2012 and changing global and domestic risk perceptions, particularly relating to the adverse developments in the South African labour market and the downgrades by the various ratings agencies."

gill marcus  |  interest rates  |  inflation  |  sa economy


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