South African Interest Rate Held at 7.0%

November 17, 2009

Officials agreed to leave the South African Reserve Bank benchmark interest rate at 7.0%.  This matched the decisions at monthly meetings in October and September.  Officials also scrapped December’s scheduled meeting and decided to meet bi-monthly next year starting in January, thus reverting to a prior pattern of less frequent policy meetings.  The rate decision matched most expectations, although a minority of analysts had held out for a cut.  From December through May, the central bank implemented five aggressive rate reductions, an initial drop of 50 bps to 11.5% and then cuts of 100 bps each in February, March, April and May.  Following a pause, a sixth cut in mid-August brought the key rate down to 7.0% from 7.5%.

Following a recession that saw GDP drop 2.8% between 2Q08 and 2Q09, officials are guardedly optimistic about recovery prospects, cautioning that such is reliant on a fragile and uneven global upturn holding up.  They expect South African growth to run below trend “for some time” and envisage a return of CPI inflation to target by 2Q10 and staying within target thereafter at least until the final quarter of 2011.  A statement released today by monetary authorities mentions a 20% trade-weighted appreciation of the rand so far in 2009 but does so in a positive way, citing the development as a positive factor for the inflation outlook but not complaining that it also may exert a drag on South African growth.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


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