South African Reserve Bank’s Repo Rate Left Unchanged at 5.0%

May 23, 2013

South Africa has a fragile economy, and growth prospects are sufficiently lackluster to prompt monetary officials to revise its forecasts downward to 2.4% this year and an average pace of around 3% in 2013-14.  That said, room does not presently exist to cut the 5.0% repo rate because of

  • A depreciating rand and the risk of fanning a vicious cycle of depreciation and accelerating inflation.
  • A large current account deficit whose existence makes the rand vulnerable should the SARB ease policy further.
  • Uncomfortably high 5.9% CPI inflation that is pressing against the top of the central bank’s 3-6% target.  “The MPC assesses the risks to inflation to be on the upside.”
  • Labor unrest that threatens to exacerbate a wage-price spiral.

A statement from the Monetary Policy Committee calls the present policy stance “accommodative” and asserts that the solution to South Africa’s numerous domestic economic problems lies beyond its direct control:  “While the Bank is prepared to play its part, many of these challenges are beyond the role, scope and effectiveness of monetary policy.”

From a peak of 12.0% prior to the Great Recession, the repo rate has already been slashed by 700 basis points but all be 50 basis points of that reduction was completed in 2010.  One final and unexpected cut of 50 bps was announced July 19, 2912 as pre-emptive insurance against the global impact of the euro zone possibly pulling apart.  Shortly after that move, ECB Pdt Draghi promised to do whatever it takes to preserve Europe’s common currency, and financial markets stabilized.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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