Reserve Bank leaves repo rate at 6,5%

The Reserve Bank left its repo rate steady at 6,5% on Thursday, in line with expectations, as the economy stays on course to recover from last year’s recession, and on balance inflation expectations.

In a statement Governor Gill Marcus said the main upside risk to the inflation outlook continued to emanate from cost push factors but that inflation was expected to remain within the 3% to 6% target for the forecast period.

“Inflation expectations have remained relatively elevated albeit with a slight downward trend,” Marcus said.

“The monetary policy committee assesses the risk to the inflation outlook as being evenly balanced and views the current monetary policy stance as appropriate.”

Sixteen out of 21 economists polled by Reuters last week saw the central bank leaving rates unchanged, while five forecast a further 50 basis point cut to 6% to help boost growth.

“We see that global economic outlook remains uncertain. The sovereign debt crisis in Europe has had a short risk, but significant long-term risks and uncertainty persist.”

She said while the recovery in the domestic economy had continued, indications were that growth in the second quarter was likely to have been less favourable.

Analysts had said while the central bank would consider the outlook for growth in its decision, its focus would remain on its core role of inflation targeting, with the impact of electricity tariff increases by power utility Eskom seen pushing the consumer price index higher in the next few months.

The repo rate is already at its lowest in three decades, and the central bank might want to allow more time for the 550 basis points of cuts implemented from December 2008 to March this year to work through the system.