Reserve Bank leaves repo rate unchanged

Reserve Bank governor Gill Marcus.

Reserve Bank governor Gill Marcus.

Citing the weak rand, rising inflation, and slow global economic recovery, Reserve Bank governor Gill Marcus on Thursday said there had been no discussion about a rate cut or increase.

"From the numbers we are presently seeing, it was decided that we should stay where we are."

Marcus, calling domestic growth "fragile", raised concerns about a lack of confidence evident from investors in the volatility of the rand and stressed the need for "cohesive policy and decision making" by government to provide certainty.

She also warned against a "wage escalation spiral" which would lead to job losses.

"We are worried about wage increases going overboard," she said. "Every effort needs to be taken to ensure job losses are avoided."

Global economic outlook
Marcus said the monetary policy's decision to leave the repo rate unchanged was influenced by, among other things, South Africa's burgeoning current account deficit and investor fears of labour and social unrest which influenced the rand pushing it past the R9 to the dollar mark on Wednesday – its lowest levels against the dollar in four years.

She said the global economic outlook "remained a challenge" with continued uncertainty about the United States fiscal cliff.

The Monetary Policy Committee (MPC) took into consideration a 16% increase from Eskom. The bank cut its economic growth forecasts to 2.6 % for this year from a 2.9 % expectation at the previous MPC meeting.

Higher inflation was a concern for the committee, with data indicating it was at 5.7% last month, its highest level since May last year and just short of the upper limit of the bank's 3-6% target range.

Marcus said inflation was expected to average 5.8% this year, peaking at 6.1% in the third quarter. Also taken into consideration was the consumer price index.

The average increase for last year was 5.6%, up from 5% in 2011 and 4.3% in 2010. The prime lending rate remains at 8.5%.

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