No Follow-Up Rate Cut at the South African Reserve Bank

September 20, 2012

At its previous meeting the MPC assessed that conditions justified a pre-emptive loosening of the monetary policy stance. Although global and domestic growth conditions remain challenging, the MPC is of the view that a further reduction in the repurchase rate is not appropriate at this stage. The MPC has therefore decided to keep the repurchase rate unchanged at 5,0 per cent per annum. This accommodative stance is assessed to be consistent with the Bank’s price stability mandate, and conducive to encouraging growth and domestic investment. Further actions going forward will be highly dependent on global and domestic developments that may change the risks to the outlook.

Even before July’s 50 basis point rate cut, the repo rate had stood at a 30-year low since the prior reduction in November 2010.  Between December 2008 and then, the repo rate was reduced nine times by a total of 650 basis points.

The ECB, BOJ and Fed have eased since SARB’s repo rate cut in July, lessening but far from erasing negative global uncertainties.  “Domestically, inflation continued to surprise on the downside although it appears that the short-term low point could have been reached. Despite a number of upside supply side risks [involving food and energy], inflation is expected to remain contained within the target range over the forecast period. The growth outlook, however, has deteriorated somewhat in response to both domestic and global developments.”  The mining sector is likely to soften a bit. Bank officials at this policy review revised projected GDP expansion next year down to 3.4% from 3.8%.  Inflation is expected to hover at or marginally above 5.0% through 2014.  Thus far, the rand has been comparatively resilient.  Future depreciation could be an upside risk to prices.

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

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