South African Reserve Bank Leaves Repo rate at 5.0%

November 22, 2012

Ten central bank rate cuts between December 2008 and July 2012 cumulated to 700 basis points.  The present 5.0% represents a multi-decade low.  As in previous policy meeting in September, monetary officials concluded that a balance of downside growth risks and upside price risks deemed any rate change at this time to be inappropriate. 

The MPC assesses the balance of risks to the inflation outlook to be on the upside, given the continued pressure of food prices, uncertainty of the exchange rate movements and the reweighting and rebasing of the CPI. Furthermore, the possible impact of higher wage increases could exert further upward pressure on inflation notwithstanding the concerns that recent developments in the labour market could impact negatively on employment. The MPC considers that the demand pressures on inflation at this stage remain relatively benign, as evidenced in the contained trend of underlying inflation. There are also signs of moderation of consumption expenditure against the backdrop of a weak supply side of the economy. The negative output gap is expected to persist for some time, and the balance of risks to the growth outlook remains on the downside.  In the light of these factors, the MPC is of the view that the current accommodative stance remains appropriate and has therefore decided to keep the repurchase rate unchanged at 5,0 per cent per annum.

Most of the easing from a peak of 12% occurred before 2011.  The breakdown of rate cuts by year was 50 bps in 2008, 450 bps in 2009, 150 bps in 2010 and 50 bps in 2012.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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