SARB keeps Repo rate untouched at 5.5%

SA's Reserve Bank Governor, Gill Marcus left interest rates unchanged at 5.5%, saying the economic growth outlook remained subdued although risks to inflation were on the upside.

South Africa's Reserve Bank Governor, Gill Marcus left interest rates unchanged at 5.5 percent, saying the economic growth outlook remained subdued although risks to inflation were on the upside.

The Bank left its repo rate unchanged at 5.50% on Thursday, in line with consensus, following its March three-day monetary policy committee meeting, but indicated that rate hikes are on their way this year.

The repo rate was raised by 50 basis points to 5.5% in January after the MPC had expressed concern over rising inflation and a weak rand.

Inflation as measured by the consumer price index  rose by 5.9% year on year in February while figures out on Thursday showed the producer price index for final manufactured goods rose by a more than expected 7.7% year on year in February.

"While the most recent inflation forecasts suggest marginal improvements in the medium term, upside risks to the inflation outlook persist despite the recent appreciation of the rand, which remains vulnerable to shifts in global risk sentiment and adverse domestic developments," Reserve Bank Governor Gill Marcus said.

Protracted work stoppages, electricity supply constraints and the slow adjustment of the current account deficit contributed to the rand's vulnerability to domestic "idiosyncratic factors".

"The domestic economic outlook remains subdued amid continued strikes in the platinum sector and uncertainty regarding a stable and sufficient electricity supply in the coming months," She said.

Marcus also said that interest rates are unlikely to fall in future - and may rise.

"We are indicating that the interest rates are likely to rise in the future," governor Marcus said in Pretoria, announcing the decision of the monetary policy committee (MPC).

"We do not see reducing rates on the cards at this time."

She said the MPC was aware of the policy dilemma of rising inflation pressure in a subdued economic growth environment.

She said the committee would continue to focus on the medium term inflation trajectory and that the MPC was aware that too slow a pace of tightening could undermine inflation expectations. Too slow a pace of tightening could also require more aggressive tightening in the future, she said.

The pace of tightening would depend on factors including projected inflation, inflation expectations, the state of the economy and global developments.

"We wish to reiterate that even though we are in a tightening cycle, there will not necessarily be a change in the stance at every meeting, and that the increments may not always be of the same magnitude."

Marcus said the decision to keep the interest rates unchanged was not a unanimous decision.

Elize Kruger, economist at KADD Capital, said: “It was a good decision to keep the rates on hold as economic growth is still struggling to gain traction.