South African Reserve Bank

March 27, 2014

The South African Reserve Bank embarked on a tightening interest rate cycle in January, raising its repo rate to 5.5% from a 42-year low of 5.0% in place since July 2012.  Although today’s meeting failed to increase the repo rate further, officials said that more increases would follow but that the tightening path will not be linear.  There may be meetings like today’s when the interest rate is kept steady and others when it is raised by not by 50 basis points.  Officials need to strike a balance between supporting economic growth, which for 2014 has been revised downward to a projected 2.6%, and inflation, which stood at 5.9% in February for consumer prices and 7.7% for producer prices.  Other problems include a significant current account deficit, equivalent to about 5% of GDP, and a vulnerable rand that has slumped at a double-digit pace in the past year.  The next policy statement on May 22 will probably unveil a second interest rate hike, since officials chose not to do such at this time.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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