/ 20 January 2011

Repo rate remains at 5,5%

Repo Rate Remains At 5

The South African Reserve Bank has left the repo rate unchanged at 5,5%, Governor Gill Marcus said on Thursday.

The prime rate would stay at 9%.

This was in line with market expectations and kept the rate at its lowest level in 30 years.

Thursday’s decision could signal the halting of a 650 basis point loosening cycle that began in December 2008.

According to a Bloomberg poll, 21 out of 22 economists expected the Bank to keep the repo rate on hold.

Twenty-one out of 22 economists polled by Reuters predicted the central bank would hold rates steady, with only one expecting a 50 basis point cut to 5.0 percent.

Economists reactions
Carmen Altenkirch, economist at Nedbank said: “Today’s MPC statement was markedly more hawkish than November’s statement, highlighting an improving outlook for both the domestic and international economy as well as deterioration in the bank’s inflation forecast.

“The risks to the inflation outlook have also increased, but mainly reflect higher global food and fuel prices. Interest rates are expected to remain on hold throughout the rest of this year, reflecting below potential growth as well as inflation, which is still expected to remain within the target band over the forecast period.”

Brait economist Colen Garrow also said that the outcome was as expected.

“The rates decision is much in line with what the market expected. A couple of things came up: inflationary expectations have been revised upward, and the consumption side is better. At some point this year, interest rates could start moving up.”

Elize Kruger, economist at KADD Capital thought the outcome was expected.

“In line with our expectations, rates have remained unchanged. The MPC has taken into account the high oil price, as well as the growing momentum and recovery of the South African and international economies.”

“I think it was a good decision on the part of the MPC to leave lending rates unchanged, given rising fuel, electricity and international food prices. These potentially pose a threat to inflation outlook.,” said Craig Parker of Frost and Sullivan.

Shireen Darmalingam, economist at Standard Bank, said: “We largely expected the decision and only expect a rate increase in the first quarter of 2012.” — Sapa, Reuters, I-Net Bridge