Repo rate remains unchanged

Thursday, June 25, 2009

Pretoria - South Africans will be disappointed that the streak of interest rate cuts over the past few months has come to an end, with the South African Reserve Bank (SARB) announcing that the repo rate will remain unchanged.

The committee has cut the repo rate by 450 basis points in the past six months and economists had been predicting an announcement of a further 50 basis points cut.

"The Monetary Policy Committee has decided to keep the repurchase rate unchanged at 7.5 percent per annum," said Reserve Bank Governor Tito Mboweni at the end of a two-day Monetary Policy Committee (MPC) meeting on Thursday.

With the repo rate unchanged, the prime lending rate will remain at 11 percent.

The governor explained that the domestic economy continued to show signs of stress because of the global downturn.

However, he added that there were signs that the downturn, both at home and globally could be nearing the lower turning point "but the recovery is expected to be slow and protracted".

"The committee is fully cognisant of the fact that there has been significant monetary accommodation since December last year. The MPC remains fully committed to its mandate of achieving and maintaining price stability," said the governor.

Senior economist at Investment Solutions Chris Hart told BuaNews that he had been shocked at the decision but that it was excellent at the same time.

"The repo rate has come down quite dramatically. We need to bear in mind that interest rates going too far can be destructive thereby restricting growth whereby investing becomes sterile. Growth needs to be looked after. If interest rates are too low this can hamper growth," said Mr Hart.

He added that the MPC was likely to keep the repo rate unchanged again when they meet in August.

In May, the central bank announced that a technical sub-committee was to be established is to investigate the difference between the repo and the prime lending rates.