South African Reserve Bank Stands Pat for Now

September 22, 2011

South Africa’s repo rate was left at 5.5% for now, where such has been since a 50-basis point cut in November 2010.  650 basis points of easing were administered in nine doses between December 2008 and May 2010.  Although today’s statement cites some potential price risks like the rand’s depreciation of more than 14% against the dollar since end-2010, it is expected that CPI inflation will hold in its 3-6% target range.  The parting thought of a rather lengthy statement from Governor Marcus is that officials are “concerned at the potential impact of the current global turmoil on domestic economic prospects and stands ready to act appropriately should the need arise.”   Risk aversion has caused a reversal of previously incoming capital flows, weakening South African securities and depressing the rand.  After disappointing growth of 1.3% annualized in the second quarter, down from 4.6% between 4Q10 and 1Q11, officials estimate South Africa’s output gap to have widened to 3% by the middle of this year.  This adverse economic momentum is continuing: “Recent data have confirmed the fragile and uneven nature of the domestic economic recovery, and unfavorable forward-looking indicators are consistent with a downward revision of the Bank’s economic growth forecast.”  The next central bank rate change appears more likely to be a cut than a hike.

The next and final Monetary Policy Committee meeting of 2011 ends on November 10.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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