Share

Marcus holds rates but cut was on table

Johannesburg - South Africa's Reserve Bank left its repo rate unchanged on Thursday, while admitting for the first time in nearly a year that it had considered a cut to try to boost weakening growth.

As well as restive unions and threats of output disruptions in the mines, South Africa's electricity supply is looking very tight with the onset of the southern hemisphere winter and the possibility of rolling blackouts is high.

The bank also reiterated that exports were suffering from weak global demand, gloomy news for President Jacob Zuma as he heads to an election in 12 months' time with unemployment stuck above 25%.

The bank left rates at 40-year lows of 5%, in line with the consensus of 25 economists polled by Reuters last week. Its last reduction was in July last year.

As well as trimming its 2013 GDP growth forecast to 2.4% from 2.7%, it also raised concerns about "fractious labour relations" in the mining sector, which is about to embark on the toughest round of wage talks in memory.

"Given the current unsettled environment in the economy, the MPC assesses the risks to inflation to be on the upside, while many of the above factors contribute to a downside risk to growth," governor Gill Marcus said.

Reflecting these difficulties, Marcus said the MPC had discussed a rate cut "extensively".

"It was on the table," she told a news conference.

However she also warned that it was "premature" for the market to start pricing in a rate cut - a comment that helped the rand gain 0.4% to R9.5375/$.

Analysts said those gains were likely to be short-lived as pressure to stimulate flagging growth ahead of next year's election builds throughout the year.

"For markets, the most important outcome was in the admission that the debate does seem to have shifted," said Razia Khan, head of Africa research for Standard Chartered.

"For South Africa, this remains the only real avenue of stimulus available. The reasons not to cut again are once again becoming less weighty, and will continue to depend very much on the growth outlook."

Forward Rate Agreements (FRA's) had been pricing in the chance of a rate cut before the rand plunged to a 4-year low in the last two weeks amid fears of a repeat of last year's mining violence, in which more than 50 people died.

Marcus said she was concerned about the prospect of excessive wage settlements in the sector after one mining union demanded a salary hike of 60 percent for gold and coal miners.

"The MPC is increasingly concerned about the prospect of settlements well above inflation and productivity growth and the risk of protracted and disruptive strike action, with negative implications for growth and exports," she said.

Despite this, the MPC produced a slightly improved outlook for inflation, with CPI expected to breach its 3-6 percent target band in the latter half of this year at a lower average rate of 6.1 percent, compared to 6.3 percent previously.

This was the first MPC meeting for new committee member Kuben Naidoo, a former senior official in the National Treasury, who also joins Marcus' advisor.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.90
+0.2%
Rand - Pound
23.86
+0.2%
Rand - Euro
20.36
+0.3%
Rand - Aus dollar
12.31
+0.3%
Rand - Yen
0.12
+0.2%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders