PAUL RICHARDSON, Johannesburg | Thursday 6.00pm
The Reserve Bank on Thursday signalled its discomfort with the current volatility on domestic financial markets by tightening its monetary policy stance for the first time in six months.
But Bank deputy governor James Cross said it did not intend to steer the country’s interest rates — which have been in decline since mid-October last year — on an upward path.
”The markets are unstable at the moment. This should be seen as a holding operation. There is no intention to raise rates at all,” Cross said.
South Africa is suffering from stagnant growth and severe unemployment and needs lower borrowing costs to jump-start the economy as the country prepares for its second all-race elections on June 2.
Commenting on the fact that the repo rate had in fact risen, Cross said: ”This is not an exact science.”
Bond yields hit their weakest level since early February after the repo — with which the Bank fine tunes monetary policy — rose to 15,455% from 15,450% on Wednesday.
The central bank announced earlier that it would under-allot the daily repurchase tender by R50-million, a signal that it wants rates to at least stabilise.
”We felt we were moving steadily downstream and thought we would put the anchor out for a while,” said Cross.
”The signal is basically to maintain the rates where they are at the moment and then we will see how things materialise,” he said.
Its action follows renewed volatility on domestic markets which saw bond yields rocket, pushed the rand to its weakest since early April and dented sentiment on the local bourse.
Traders were also concerned over the recent fall in the gold price and its possible impact on the country’s economy. Volatility has peaked in the last two days following Russian President Boris Yeltsin’s announcement on Wednesday that he had sacked his entire cabinet — a move which hit emerging market sentiment. — Reuters