/ 20 March 2013

MPC keeps repo rate unchanged at 5%

Mpc Keeps Repo Rate Unchanged At 5%

"The MPC has decided to keep the repo rates unchanged at 5% per annum," Reserve Bank governor Gill Marcus said on Thursday, after the committee's three-day meeting in Pretoria this week.

The decision means the prime interest rate for bank lending remains at 8.5%.

The bank has kept the repo rate at 5% since July last year, when it dropped it by half a percentage point.

Marcus noted that a possible spike in inflation remained a key concern due to a recent slide in the value of the rand after hitting a four-year low of R9.29 to the dollar earlier in March.

"The committee will continue to apply monetary policy consistent with its mandate of price stability within a flexible inflation targeting environment," she added.

But Marcus said that even though the inflation outlook deteriorated, the MPC expected inflation to remain within its official 3% to 6% target range at an average of 5.9% in 2013.

No change expected
Marcus also warned the country's growth prospects remained subdued and projected gross domestic product (GDP) would grow by only 2.7% this year and 3.7% in 2014.

She also noted that South Africa's economy was still performing below its potential.

"I don't think anyone was expecting a change in interest rates and rightfully so," said Chris Hart, chief economist at Investment Solutions.

"The Reserve Bank is in a tough spot at the moment as growth is depressed but inflation is growing but it would have been a bad idea to tamper with the interest rates at this stage."

Hart's view was echoed Adenaan Hardien, senior economist at Cadiz.

"We predict the next move on interest rates to come out at the end of 2014 with an increase being brought in," he said.

"But this will be dependent on our real growth prospects and of course what happens with the rand during that period."