MIRIAM ISA, Pretoria | Friday 5.00pm.
THE Reserve Bank left interest rates unchanged after its regular six-weekly meeting on Friday, but said it would not hesitate to tighten monetary policy if inflation continued to rise.
”The Monetary Policy Committee has decided to maintain its current policy stance,” the committee said in a statement released after the two-day meeting.
”If signs appear that stronger inflationary pressures are building in the economy, the Reserve Bank will not hesitate to take appropriate measures,” it said.
The decision means that South Africa’s benchmark interest rate, the repo rate, will stay at 11.75 percent, as it has since the middle of January following months of steady decline.
The announcement was widely expected and had only a minimal impact on financial markets. Government bond yields fell slightly as prices rose, while the rand came off its weakest levels against the dollar to trade at R7.13/7.14.
”A stance keeping (the central bank’s) options open but not tightening at this point is right,” said Dennis Dykes, chief economist at Nedcor.
The MPC statement noted that the immediate upside risk for inflation had increased due to recent depreciation of the rand and renewed oil price rises, but said inflation was still set to fall within its three to six percent target by 2002.
”The secondary effects of oil price increases, the higher rand value of imports and rising food prices during 2000, are expected to result in inflation pressures over the short-term which will be monitored meticulously,” the statement said.
The CPI-X inflation benchmark, which the bank targets, rose by 7.8 percent in the year to April, but most economists expect it to subside later this year. That measure strips out the effect of changes in mortgage interest rate costs.
The rand has lost more than 15% of its value against the dollar so far in 2000 due to a combination of factors including euro weakness, dollar strength and concerns about political unrest in Zimbabwe affecting all southern Africa.
Central bank Governor Tito Mboweni told reporters at a news briefing after the policy meeting that he saw scope for a significant recovery in the rand.
He pointed out that despite the rand’s woes, economic fundamentals remain sound and the economy was still set for positive growth, even though there was a slowdown in the first quarter.
Some economists believe the possible inflationary impact of further rand weakness, coupled with rising import costs from higher oil prices, could mean the next move in rates will be up. — Reuters