/ 10 November 2011

Repo rates remain steady at 5.5%

Repo Rates Remain Steady At 5.5%

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, with 18 of 21 economists surveyed by Bloomberg agreeing the rate would be kept on hold.

Some economists were expecting a rate cut of 0.5% following the European Central Bank’s surprise rate cut last week.

This was the sixth consecutive meeting where the repo rate remained unchanged after it was reduced by 650 basis points between mid-2008 and December 2010. It keeps the rate at its lowest level in over 30 years.

No progress
Marcus said there had been no meaningful progress in solving the sovereign debt crisis in the eurozone since the last monetary policy committee (MPC) meeting.

“The committee is aware of the dangers of a disorderly resolution of the crisis and the systemic implications for the global and domestic economy and remains ready to act appropriately should the need arise,” she said.

Domestic economic recovery remained hesitant, she said.

“The relatively weak economy has ensured that demand pressures on inflation are restrained at this stage.”

However, external supply side factors had resulted in a deterioration of the inflation outlook.

The MPC now expected its inflation target of between 3% and 6% to be breached in the final quarter of 2011.

Target range
Marcus said inflation would peak at around 6.3% in the first quarter of 2012 before declining gradually to within the target range in the final quarter of 2012.

It would reach a level of 5.2% in the final quarter of 2013.

The MPC had revised its economic growth forecasts down from its previous meeting in September.

Gross domestic product (GDP) growth was now expected to be 3% in 2011, down from 3.2% in the previous forecast.

It was then expected to be 3.2% in 2012 — revised down from 3.6%.

GDP growth in 2013 was forecast at 4.2% compared to the previous forecast of 4.4%.

“The downward revision is a result of revised assumptions primarily of international commodity prices and global growth,” Marcus said. — Sapa