Reserve Bank wary of euro crisis

Sarb's monetary policy committe (MPC) said it had spent the majority of its two-day meeting discussing possibilities of a break in global economic recovery as a result of turmoil in European debt markets.

"It's important not to be complacent of the risks on us," said one MPC member. "The MPC will look at long-term trends and not short-term market volatility."

The local currency has already weakened against the dollar during the past week, after investors abandoned risk- prone assets such as the rand.  

The MPC said the trading range of the currency could be unpredictable, but warned against suggestions from labour movements to take action against volatility.

"When markets are favourable towards South Africa, money comes in and there's not much you can do about it," said a member. "In the past few days, we have seen how that sentiment can turn negative just as quickly."

Meanwhile, moderate inflation risks and a seemingly steady recovery in the rand prompted the MPC to keep the key lending rate unchanged at 6.5%/annum.

Marcus hinted that rates are likely to remain at this level at the following meeting, unless risk from the eurozone debt crisis calls for urgent action.  

"We expect rates to stay on hold for the rest of the year before gradually increasing in 2011," said Saul Geffen, CEO of ooba, one of South Africa's biggest bond originators. 

 - Fin24.com