THE Reserve Bank’s monetary policy committee (MPC) on Wednesday (20/03/2013) kept the repurchase rate unchanged at 5% following its three-day meeting in Pretoria‚ balancing the deteriorating inflation outlook against weak economic growth.
The prime lending rate therefore also remains at 8.5%.
Economists had expected the Bank to flag the risk to inflation from the rand’s recent slide — the currency hit a four-year low at R9.29/$ last week — but markets will scrutinise the tone of the statement that accompanied the Bank’s announcement to gauge the outlook for interest rates in the year ahead.
Bank governor Gill Marcus said the inflation outlook had deteriorated though the MPC expected inflation to remain within its official 3%-6% target range‚ averaging 5.9% this year.
She also said South Africa’s growth prospects were fragile‚ with gross domestic product growth seen at 2.7% this year and at 3.7% next year.
The rand is also expected to remain volatile‚ she said‚ describing it as a main inflation risk.
Earlier this month‚ Ms Marcus quashed speculation that interest rates may fall again‚ saying the scope for further easing was constrained by the need to keep inflation inside its target range.
Consumer inflation‚ as measured by the consumer price index (CPI)‚ quickened more than expected last month‚ dashing any hope for further interest rate cuts.
The CPI rose to 5.9% in February compared with the a year earlier‚ from 5.4% year on year in January. The 5.9% was much higher than the 5.7% year-on-year consensus forecast among leading economists.
"We have for a long time been arguing that upside inflation risks will prevent the Reserve Bank from cutting interest rates again in this cycle‚ which is supported by (February’s CPI) data‚” Renaissance Capital economist Elna Moolman said.
The upward pressure in prices was led by increases in the transport index‚ which rose mainly due to a 41c/l increase in the petrol price. Petrol has a higher weighting in the CPI basket that became effective in January.
Views are mixed on whether the rand will recover or remain weak in the months ahead — Ms Marcus has said that its break through the key R9/$ level was overdone. With Ntsakisi Maswanganyi and Mariam Isa. © BDlive 2013