The South African Reserve Bank’s (SARB) monetary policy committee (MPC) decided on Thursday at the end of a two day meeting — the first of the year — to leave the repo rate unchanged at 8%.
This means the prime interest rate is to remain steady at 11,5%.
SARB Governor Tito Mboweni said the central expectation of the MPC is that CPIX inflation will remain within the target range during the forecast period while the economy continues to pick up momentum.
“Accordingly the MPC has decided to maintain the current monetary policy stance and keep the repo rate unchanged at 8% per annum. The MPC will continue to monitor all the risk factors to the inflation outlook.
“If the outlook changes, the committee will not hesitate to change the monetary policy stance,” he said.
Several economists reacted to the announcement.
Chris Hart, economist at Absa, said: “The SARB is reflecting that inflation conditions are benign. It looks as if the exchange rate is going to be the swing factor for interest rates. If there is a further strengthening in the rand, inflation will remain benign and as a result there could be further rate cuts in the months to come.
“It is possible that there could be a repo rate cut towards the end of the year or in the first quarter of 2005.
“South Africa currently has very high real interest rates. The economy is likely to underperform in the months ahead, due to the strong rand and high real interest rates.
Johan Rossouw, chief economist at Vector, commented: “I think it was a sensible thing to do, you must remember that the duty of the MPC is to focus on one or even two years looking ahead, it’s not just what happens now. From now on the performance of the rand will be extremely crucial and I believe there will be an upward move of the rates to about 9% before the end of the year.
Monica Ambrosi, economist at Standard Bank, said: “I’m not surprised, however I still feel that there should have been a cut of about 0,5%, given recent data releases by Statistics SA. It’s definitely not a surprise. On the balance I felt the MPC listed all the reasons that would have resulted in a cut only to decide not to. From here we’ll have to wait and see, the inflation environment remains subdued and I predict a flat line as far as interest rates are concerned until the end of the year.”
A senior Tradek economist, Mike Schussler, said: “I think the decision was very much expected, but I believe that there is still room for another interest rate cut in April. I agree with Reserve Bank governor Tito Mboweni that we need to be very careful this time around given producer inflation figures. This will not have any impact on the bond market or the markets in general.”
George Glynos, market analyst at Econometrix Treasury Management, commented: “The decision is in line with our expectations and Reserve Bank governor Tito Mboweni gave a fairly balanced view. I think rates will remain unchanged for some time to come. There has been no real reaction from the rand, but the decision should add to the rand’s resilience.” — I-Net Bridge
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