Reserve Bank retains repo rate at 5,5%

South Africa's Reserve Bank (SARB) Governor, Gill Marcus has just announced that the Repo rate will be maintained at 5.5% per annum.

South Africa's Reserve Bank (SARB) Governor, Gill Marcus has just announced that the Repo rate will be maintained at 5.5% per annum.

“The committee [Monetary Policy Committee] decided to keep the repurchase rate unchanged at 5.5% annum at this stage. Future actions will be data dependant and determined by developments in the inflation outlook and inflation expectation,” said Governor Gill Marcus.

Analysts had expected the repo rate to remain unchanged. 

However, the committee continued to hold the view that it is a rising interest rate cycle.

“The committee continues to hold the view that we are in a rising interest rate cycle, and interest rates will have to be normalised in due course,” she said.

The bank hiked interest rates at its first meeting of the year in January.  At the time the repo rate - which is the scale at which the bank lends money to commercial banks - had up until January 2014 left the repo rate unchanged at 5% since July 2012.

“At this stage the pace and timing of normalisation in the advanced economies appears to have been pushed out further and may be more moderate than previously believed. We are also aware that this can change very quickly,” she added.

The decision to keep rates unchanged was not a unanimous one, added the governor.

Data from Statistics South Africa (Stats SA) yesterday showed that the Consumer Price Index (CPI) breached the central bank’s 3 to 6% inflation target range coming in at 6.1%.

“The MPC continues to face the difficult dilemma of dealing with upside risks to inflation and a deteriorating domestic economic growth outlook. Although the breach of the upper end of the inflation target band was in line with the Bank’s forecast, the risks to the forecast remain on the upside,” noted the committee.

This dilemma is increased by the fact that inflation is seen to be driven primarily by supply side factors while demand in the economy remains subdued.

Additionally food prices, said the governor, remain a risk to the inflation outlook.

The growth forecast for 2014 has also been revised downwards to 2.1% and the first quarter growth outcome is anticipated to be the lowest quarterly growth rate since 2009’s recession.

Stats SA will release figures of gross domestic product on Tuesday.

In a research note earlier today, Standard Bank said it expected the bank to keep rates steady, adding that the bank would be reluctant to tighten monetary policy further as long as growth remains weak.
Nedbank economists also expected the repo rate to remain unchanged.