South African Reserve Bank Keeps Status Quo Despite Cost Push Pressure

March 29, 2012

South Africa’s key repurchasing rate of 5.5% was last changed on November 18, 2010. A 50-bp cut then culminated a nine-step 650-basis point easing cycle that was begun in December 2008.  A statement from central bank officials concedes that cost-push pressures, mainly from wages, persist but errs on the side of supporting economic growth.  Latitude not to tighten exists because CPI inflation fell last month to 6.1%, just marginally above the 3-6% target range, from 6.3% in January.  PPI inflation meanwhile fell to 8.3% from 8.9%.  Bank officials expect GDP to expand just 3.0% this year, similar to last year’s 3.1%.  “The MPC is of the view that while the main pressures on inflation are of a cost push nature, there is some evidence that these pressures may be becoming more broad-based. However these developments are in line with our previous forecasts and are expected to remain contained by the relatively subdued state of the domestic economy. Although at this stage the Committee assesses the risks to the inflation outlook to be fairly evenly balanced, greater vigilance will be required going forward.”

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



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