Repo rate remains at 7%

Tuesday, September 22, 2009

Pretoria - The South African Reserve Bank (SARB) on Tuesday decided to keep the repo rate unchanged at 7 percent, much to the disappointment of many South Africans.

Outgoing Governor Tito Mboweni said at the end of the two-day meeting of the Monetary Policy Committee (MPC), it was agreed to leave the repo rate unchanged.

"Given the current policy stance, inflation is expected to continue moderating and return to within the inflation target range during the forecast period. Accordingly, the MPC has decided to leave the repurchase rate unchanged at 7 percent per annum," said Mboweni.

The risks to the inflation outlook, he said, appeared to be fairly balanced, with the main upside risks continuing to emanate from high increases in administered prices with particular reference to electricity prices.

He said the forecast for inflation continued to indicate that it was likely to return to a sustained basis within the inflation target range of between 3 and 6 percent.

Mboweni said it was expected to reach the range by the second quarter of next year.

The governor added that though globally there were signs of economic recovery from the meltdown, South Africa's recovery would be a slow one.

"The domestic recovery is likely to be influenced by global growth developments and is subject to a relatively high degree of uncertainty. Domestic inflation has continued its downward trend but some risks to the outlook remain," he said.

Economists, who predicted that the rate would remain unchanged, said the decision was not a surprising one.

"It wasn't a complete surprise but despite the pause, we could see a potential cut of 50 basis points in this year," Nedbank economist Carmen Altenkirch told BuaNews.

However, Deputy Director in the Bureau for Economic Research, George Kershoff, predicted that another cut for the year was unlikely.

"At the moment we don't see a cut on the cards. We expect it to remain unchanged for the rest of the year unless administered prices and municipal fees come down which is unlikely," he said.

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