The South African Reserve Bank’s monetary policy committee (MPC) on Tuesday decided to keep the repo rate unchanged at 7,0%. This is in line with consensus expectations in the marketplace.
South Africa’s central bank left its repo rate unchanged at 7,0% on Tuesday, amid signs that the economy is on the mend while inflation remains above the target band, but is seen moderating.
The announcement by Reserve Bank Governor Tito Mboweni came about six hours after official data showed annual targeted consumer inflation slowed in line with expectations to 6,4% in August, although it remains above the top end of a 3% to 6% target band.
”The monetary policy committee is of the view that the risks to the inflation outlook appear to be fairly evenly balanced,” Mboweni told a news conference after the policy meeting.
”Given the current policy stance, inflation is expected to continue moderating and to return to within the inflation target range during the forecast period.”
Eighteen of 25 economists polled by Reuters last week saw the key repo rate unchanged at 7,0% on inflation concerns, while seven expected a 50 basis point cut to 6,5%.
Mboweni said inflation was likely to return on a sustained basis to the inflation target range by the second quarter of 2010.
The Reserve Bank has slashed rates by a total of 500 basis points since December 2008 to help boost growth as the economy struggles with its first recession in 17 years.
Mboweni said there were early indications that a lower turning point in domestic output may have been reached.
Gross domestic product contracted by 3,0% in the second quarter after shrinking 6,4% in the first.
Carmen Altenkirch, a senior economist at Nedbank said on Tuesday: ”It was not a surprise that the MPC decided to keep rates unchanged, although recent rand strength, combined with a further improvement in the inflation outlook, could have tipped the balance in favour of another cut.
”Rather the committee opted to wait and see whether recent data, which shows that the domestic economy is beginning to recover, could be confirmed before opting to cut rates further.
”Despite the pause, it is not clear whether this signals the end of the cutting cycle, as it is quite possible that the recovery could disappoint and prompt further easing. We still expect one further 50 basis point cut this cycle.” Reuters, I-Net Bridge