Reserve Bank warns of Lingering Volatility
South African Reserve Bank Governor Gill Marcus said mounting inflationary pressures and lackluster growth led the bank to keep its key interest (Repo) rate at 5%.
The South African Reserve Bank kept its benchmark interest rate unchanged at 5%, warning that the local currency will remain volatile while investors guess at the Federal Reserve's plans for withdrawing economic stimulus.
Interest rates in South Africa have again remained steady following the three-day meeting of the Reserve Bank’s monetary policy committee (MPC).
South African Reserve Bank Governor Gill Marcus said on Thursday that the MPC had once again kept its key repurchase rate unchanged at 5%. The prime lending rate therefore also remains at 8.5%.
"Mounting inflationary pressures and lackluster growth led the bank to keep its key interest rate unchanged," Marcus said. The bank has held its key rate at that four-decade low since July 2012.
She said the bank's forecast for economic growth this year remains 2%, far too low to create a significant number of new jobs in a country with an official unemployment rate of 25.6%.
She said the bank was willing to raise rates if inflationary pressures mounted, despite the weak growth outlook.
"Should conditions deteriorate this is certainly something on the table," Ms. Marcus said.
Inflation is expected to average an annual rate of 5.9% this year, from 5.8% previously. It was 6.4% in August.
Some of South Africa's emerging-market peers, including Turkey and Indonesia, have already raised interest rates to discourage investors from dumping their bonds and currencies.
Many emerging market currencies have slumped to record lows against the U.S. dollar on expectations the Fed would soon dial back its $85 billion-a-month bond-buying program to support the U.S. economy.
South Africa's rand, which was down more than 20% to the U.S. dollar in August, rallied after the Fed said late Wednesday that it will keep up the pace of its bond-buying for now.
While welcoming the reprieve, Ms. Marcus cautioned that such volatility will linger until the Fed's intentions are more clear.
"If the U.S. economy is recovering and growing, it's good news. In that good news there are negative impacts while it adjusts, and we've all got to realize how difficult that environment is," Ms. Marcus said.
