No Change Made in South African Reserve Bank’s 5.5% Repo Rate

January 20, 2011

South African monetary officials, who meet less frequently than most central bank policy boards, implemented three rate reduction in 2010 including its prior two meetings in July and November.  These had augmented 500 basis points of relief from December 2008 to August 2009.  All that easing was made possible by falling inflation, which at 3.5% as of December  is now within the South African Reserve Bank’s 3-6% target and expected to stay within those boundaries for its whole forecasting period.  But officials did not agree to a further rate cut at this week’s meeting, nor were analysts expected such. 

A statement released today projects sub-trend growth of 3.4% in 2011 and 3.6% in 2012, predicts inflation of 4.6% this year followed by 5.4% in 2012 and 5.6% in 2013, and assumes that the rand and commodity prices will remain firm.  The thinking behind a signal that present policy settings are unlikely to change soon is provided in the following two paragraphs:

The MPC has taken note of the improving growth outlook for the economy, and is of the view that the recovery in domestic consumption expenditure will be sustained. While there are increasing risks to the inflation outlook, these emanate primarily from external cost-push factors, and inflation is expected to remain within the target range until the end of the forecast period.

The MPC has therefore decided to keep the repurchase rate unchanged at 5,5 per cent per annum. At this stage there are no signs of incipient excess demand in the economy, and unless there are significant unexpected changes in the global or domestic outlook the monetary policy stance is expected to remain relatively stable for some time. The MPC will continue to monitor developments closely and stands ready to act should the need arise.

The next two policy meetings are scheduled for March 24 and May 12.

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



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