Reserve Bank of South Africa Keeps 7.5% Repo Rate in a Surprise

June 25, 2009

Even though a 100-basis point rate cut on May 28th had been at the top end of expectations, analysts had been primed for another drop in the repo rate today after earlier news of a 1.1% drop in South African producer prices last month that cut on-year PPI inflation from 2.9% in April to negative 3.0%.  It wasn’t to be, and officials released a statement with the following points to justify not cutting rates further at this time.

  • Cost-push factors continue to mitigate the drop in CPI inflation, which has been less pronounced than hoped given a wide output gap.
  • CPI inflation is projected to be in target, but not below such, in the forecast period.
  • According to several measures, expected inflation has drifted higher over the past several weeks.
  • The drop of GDP seems to be “nearing a lower turning point.”

The Reserve Bank Previously had cut its benchmark rate from a peak of 12% by 50 basis points in December and 100 bps each in February, March, April, and May.

Copyright Larry Greenberg 2009.


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