/ 23 June 2011

SA monetary policy could remain ‘favourable’

South African monetary policy may remain favourable to the economy and inflation expectations are still “anchored well within” the central bank’s target range, chief economist Monde Mnyande said on Thursday.

“I think there is a possibility of monetary policy remaining, together with other things, favourable to the South African economy. That is the answer,” he said.

Annual headline inflation quickened to 4.6% in May from 4.2% in April, coming in above market expectations but well within the Reserve Bank’s 3% to 6% target band.

“If you want to know the answer of the monetary policy committee [MPC] coming forward, definitely the inflation expectations remain anchored well within the target range,” Mnyande said at a presentation on long-term monetary policy.

However, the bank expects inflation to briefly breach the target to peak at 6.3% in the first quarter of 2012, mainly due to higher oil, food prices and administered prices.

It has kept the repo rate steady at 5.5% at its previous three policy setting meetings this year, after a 650 basis point cutting cycle in the two years to December 2010.

Analysts expect the bank to hike rates but are divided on the timing. Some see a rise in the fourth quarter of this year while others see the MPC holding off until next year.

Mnyande said on Tuesday the central bank would not raise rates only on the back of higher oil and food prices, taking into consideration all prices in the consumer price inflation basket.

Inflation has stayed within the target since February 2010. — Reuters