No Change in South Africa’s 6.5% Repo Rate

May 13, 2010

The South African Reserve Bank (SARB) left its benchmark interest rate at a 12-year low of 6.5% after today’s policy meeting, which was the result that analysts expected.  A statement from monetary authorities expressed concern about the downside risk to growth posed by Europe’s sovereign debt problems, which has rattled stock prices in South Africa as well as many world markets.  CPI inflation is projected to hold in target, that is below 6%, through the end of 2012, and price risks are considered more evenly balanced now than when the Monetary Policy Committee last met in late March.  Survey evidence indicates that expected inflation has fallen, and actual inflation was at 5.1% in March, down from 6.3% in December and 8.5% in March 2009.  Bank officials now project GDP growth at 2.7% this year and 3.6% in 2011.  This recovery, which saw GDP expand 3.2% at an annualized pace in the final quarter of 2009, follows the country’s first recession in 17 years.  The rand has been generally steady against the dollar lately, although it shows an on-year appreciation of about 11% and of course has been gaining recently against the euro.

Policymakers surprised analysts with a 50-bp rate cut at their previous meeting in March but warned at that time that they were prepared to “adjust the monetary policy stance when necessary in order to achieve the inflation target.”  Being more confident about in-target inflation over coming years, that caveat was deleted from today’s statement.  In all, the SARB repo rate was reduced eight times from December 2008 through March 2010 by a total of 550 bps from a prior peak of 12%.  In one stretch, reductions were made at six out of seven meetings, but the cut in March followed four meetings in which no rate change occurred.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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