OWN CORRESPONDENT, Pretoria | Thursday 2.30pm.
IN line with expectations, the Reserve Bank kept interest rates steady on Thursday, saying that the country’s inflation outlook remains positive despite the effects of external shocks.
”Taking the above circumstances into account, the Monetary Policy Committee has decided to maintain the current monetary policy stance,” the bank said in a statement released at the end of a regular two-day policy meeting.
The bank said that average growth in its benchmark inflation measure known as CPI-X, should be back within its 3% to 6% target range by 2002. That measure, which strips out the effect of changes in mortgage rates, rose by 7,8% in the year to April.
”Given the effects of external shocks the growth in the overall CPI-X is likely to increase into the second half of 2000, but price increases may then start to slow down and the average growth in CPI-X should be within the target band of three to six percent for the year 2002,” the bank said.
It notes that when increases in prices for energy and food were excluded from its CPI-X index, the index actually declined on an annual basis from a peak of 7,9% in March 1999 to 6,7% in April 2000.
This means that the secondary effects of recent oil and food price increases, as well as the weakness of the rand, seems to be quite muted or not yet fully reflected in the acceleration of the underlying rate of price increases, the bank said.
”Moreover, it is possible that the temporary upward pressure exerted by these external shocks may be tempered by fundamental domestic economic factors, such as the modest growth in money supply and bank credit extension; the excess production capacity in the economy; fiscal and monetary discipline; and a slowdown in the growth of nominal unit labour costs,” it adds. — Reuters