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Johannesburg - The South African Reserve Bank's (SARB) Monetary Policy Committee (MPC) has decided to leave the repo
rate unchanged at 7% at the conclusion of a two-day meeting in Pretoria.
SARB Governor Tito Mboweni said that although the outlook for inflation was generally favourable, the MPC had decided that it would be inappropriate at this stage to change the monetary policy stance in view of the risks to the inflation outlook.
Although the inflation rate over the past few months had been below 4%, it was expected to increase over the next few months, partly as a result of the higher petrol prices, he said.
"According to our central forecast, CPIX inflation will begin to rise moderately and peak in the first quarter of 2006 marginally below 5.5%, whereafter it is expected to decline moderately.
"This is marginally higher than the previous forecast and reflects changes in oil price and exchange rate assumptions," he added.
"The repo rate therefore remains unchanged at 7% per annum. The MPC will continue as usual to monitor closely all the developments in the economy and the factors influencing inflation, and will stand ready to adjust the stance
in either direction if necessary, depending on the outlook for inflation."
The no-change decision was not unexpected. Most economists surveyed by I-Net Bridge had expected no change.
Although the forecast was unanimous, the outcome was not seen as certain though, with most economists putting the chances of no interest rate cut at only around 60%.
This was the tenth consecutive meeting at which the majority of
economists had forecast no cut in rates, but in August 2004 and April 2005, the SARB did surprise the market by cutting rates by 50 basis points.
The no-change forecast was despite the fact that CPIX inflation
(headline inflation excluding mortgage costs) have been below the midpoint of the SARB's inflation target range of 3-6% year-on-year (y/y) for 18 out of the past 21 months.
The latest available June inflation data painted a promising picture of subdued inflation on both the consumer and producer fronts.
The June CPIX came in at a better-than-expected 3.5% y/y and was down from 3.9% y/y in May. June producer prices were also subdued, with the PPI reported at only 2.3% y/y versus 2.4% y/y in May.