The prime interest rate will remain steady at 17 percent after the SA Reserve Bank opted not to adjust the repo rate on Thursday.
Announcing the decision in Pretoria, Reserve Bank Governor Tito Mboweni said inflationary pressures appeared to be close to the point of subsiding.
”The current level of short-term interest rates is appropriate to bring the rate of inflation within the target range.”
The repo rate, at which the Bank lends money to commercial banks, is currently 13,5% per annum. It has been raised by a total of four full percentage points this year in a bid to stem inflation.
Mboweni was speaking after the last quarterly meeting this year of the Reserve Bank’s monetary policy committee (MPC).
He said: ”Although there is still no evidence that consumer price inflation is decreasing, a number of factors indicate that we may be close to the point where inflationary pressures could start to abate.”
These included a slowdown in producer price inflation, the strong performance of the rand against other major currencies and persistent fiscal discipline by the government.
There was also continued excess production capacity in the economy, with no signs of excess spending.
Mboweni said several significant risks still existed that could prevent consumer price inflation from reaching the Reserve Bank’s targets.
The central bank’s measure of inflation, the consumer price index excluding mortgage rates (CPIX), has risen from 5,8% in September last year to 12,5% last month.
This figure is way above the bank’s objective of achieving an inflation rate of between three percent and six percent this year.
The target is the same for the following two years.
Mboweni said risks for the CPIX included high inflationary expectations, increases in administered prices, and a faster growth in nominal unit labour costs.
”Wage settlements considerably higher than productivity increases could severely hamper the containment of inflation,” he said.
”In addition, high increases in administered prices are clearly not desirable if we are serious about combating inflation.”
The authorities and parastatals should put the matter high on their list of priorities as discipline was vital to realise the country’s inflation objectives.
Although initially fuelled by the rand’s fall and fuel price rises, inflation was now being driven by steep increases in the prices of services, Mboweni said.
He also warned business that excessive price increases could quickly erode the advantages of the current external value of the rand.
”Provided that this discipline is applied and that there are no further exogenous shocks, the CPIX inflation should start to move towards the inflation target,” Mboweni said. – Sapa