Reserve Bank Gorvenor Gill Marcus.
The monetary policy committee on Thursday decided to leave the repo rate – at which the Reserve Bank lends to commercial banks – at 5.5% (and prime at 9%) for the ninth consecutive meeting in the light of worrying developments in the eurozone and China that could take a toll on the domestic economy.
Reserve Bank governor Gill Marcus said there had been no discussion of a rate cut in the committee meeting during the past two-and-a-half days.
The euro fell to its lowest level in two years on Wednesday following news that European Union leaders were advised by senior officials to put contingency plans in place in the event that Greece left the eurozone.
The possibility of a Greek exit was a “very significant part of our discussion”, Marcus said. “The situation in the eurozone is much more complex and difficult than talking about one country.”
Members of the committee were concerned about its potential effect on exports and the exchange rate. Last week, in response to the turmoil in Europe, the rand fell to its weakest level in 2012.
Meanwhile, moderate growth in emerging markets had been observed, Marcus said.
The latest figures for China’s manufacturing activity, released by HSBC holdings, showed a slowdown in the sector in May, and its economy’s growth slowed in the first quarter of the year.
Although growth in sub-Saharan Africa continued to be robust, it was heavily subject to commodity prices and these “are expected to remain under pressure due to global uncertainties”, Marcus said.
The monetary policy committee also considered April’s consumer inflation figures, which were released this week. Although the consumer price index (CPI) rose less than the expected 6.2%, it remained outside the 3% to 6% target band at 6.1%, slightly up from 6% in March.
Higher petrol prices and transport costs were a primary driver of inflation (increasing 20% year on year in April), although food inflation was fairly subdued, rising only 0.1%. CPI (excluding oil and food) and core inflation continued to edge slightly upwards, but underlying inflation was contained.
Marcus said, owing to the lower outcomes, the bank’s inflation forecast for the near term was now lower than the last time the committee met. It was expected to average 6% in the second quarter of 2012 and gradually decline from then on, she said.
According to Stanlib chief economist Kevin Lings, an over-recovery meant the petrol price was expected to fall by about 55 cents a litre at the beginning of June and would help to ease inflationary pressure.
Marcus said the GDP growth forecast for South Africa remained unchanged.