Reserve Bank keeps repo rate at 5%

The South African Reserve Bank has decided to hold the repo rate at 5%, announced Governor Gill Marcus on Thursday.

Inflation, Marcus noted, grew to 6.3% in July 2013 and 6.4% in August – breaching the upper end of the bank's inflation target range of between 3% and 6 %. She said this was in line with the bank's forecast and is expected to moderate in the final quarter of the year. "The breach was expected to be temporary … the peak was possibly reached in August."

The bank's inflation forecast has deteriorated further. While it remains unchained at 5.9% for 2013, it is expected to reach 5.8% in 2014 (not 5.5% as previously estimated) and 5.4% in 2015, not 5.2%

"While the outlook for the domestic economic growth environment remains unchanged, it has been overshadowed by protracted work stoppages. Where wage agreements have been reached, these have generally been above the headline inflation rate, contributing to the upside risk to the inflation outlook," said Marcus.

Federal Reserve's announcement
The monetary policy committee (MPC) considered the United States Federal Reserve's announcement on Wednesday, that it would postpone a retreat from its stimulus campaign and would continue to buy $85-billion a month in bonds to encourage job creation and economic growth. The Federal Reserve's chairperson, Ben Bernanke, said economic conditions were improving but said the reserve still feared a turn for the worse. It appears more likely that quantitative easing will begin later in the year or perhaps only next year. 

Marcus said Bernanke emphasised that a decision on tapering would be led by the economic data coming out of the US. 

The delay has been good news for emerging market currencies, but it cannot last.

"While financial markets in these countries have reacted positively to the fed's [Federal Reserve's] decision not to begin tapering at this stage, the underlying weaknesses are expected to persist," Marcus said.

Some emerging markets have tightened monetary policy in response to currency depreciation and implemented a range of direct controls on capital flows or engaged in direct intervention in the foreign exchange markets.

Against the backdrop of a widening current account deficit, domestic labour disputes, and the reversal of capital flows to emerging market  economies, Marcus said the exchange rate of the rand has been highly volatile since the previous MPC meeting in July last year – when the rand fluctuated between R9.55 and R10.50 against the dollar.

Although the downside risks remain, global economic prospects have improved with the eurozone retreating from a protracted recession, led by Germany and the Japanese economy responding to stimulus packages. Fears of a marked slowdown in China have abated somewhat, although there are concerns that its growth is based on an unsustainable credit boom.

Growth forecast
The Reserve Bank's growth forecast for 2013 remains unchanged with an estimated 2% for the year and 3.3% for 2014.

The bank noted that recent wage settlements have been above inflation. According to Andrew Levy Employment Publications, the overall average wage settlement rate in collective bargaining agreements was 7.9% in the first half of 2013 and is likely to have increased in the third quarter. "The ultimate impact on inflation will depend in part on the increase in the total wage bill, as the impact of higher wages may be offset by job losses or slower employment creation," he said.

As she has in the past few MPC announcements, Marcus reiterated the bank’s readiness to act if inflation increases. "Currently, a sustained breach of the inflation target is not our central forecast but the upside risks to the inflation outlook require careful monitoring," she said. "Should the risks to the medium-term inflation outlook deteriorate significantly, the MPC will not hesitate to take appropriate action in order to maintain the integrity of the inflation targeting framework and to anchor inflation expectations at a lower level."

The MPC last decided on a rate change in July 2012 when it cut the repo rate by 50 basis points.

Advertisting

Cradock Four back to haunt De Klerk

Pressure is mounting on the NPA to charge the former president and others involved in political killings during apartheid

Ramaphosa makes peace with Malema over gender-based violence comments

In his Sona response, the president apologised for the weaponising of gender-based violence, saying the attack on the red beret leader was "uncalled for"

Steenhuisen takes the lead in DA race while Ntuli falters

‘If you want a guarantee buy a toaster. This is politics’
Advertising

Press Releases

Response to the report of the independent assessors

VUT welcomes the publishing of the report of the independent assessors to investigate concerns of poor governance, leadership, management, corruption and fraud at the university.

NWU student receives international award

Carol-Mari Schulz received the Bachelor of Health Sciences in Occupational Hygiene Top Achiever Award.

Academic programme resumes at all campuses

Lectures, practicals, seminars and tutorials will all resume today as per specific academic timetables.

Strategic social investments are a catalyst for social progress

Barloworld Mbewu enables beneficiaries to move away from dependence on grant funding

We all have a part to play to make South Africa work

Powering societal progress demands partnerships between all stakeholders

So you want to be a social entrepreneur?

Do the research first; it will save money and time later

Social entrepreneurship means business

Enterprises with a cause at their core might be exactly what our economy desperately needs

Looking inwards

Businesses are finding tangible ways to give back – but only because consumers demand it