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Reserve Bank keeps repo rate unchanged


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Old 03-27-2015, 04:28 PM   #1
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Sa Reserve Bank keeps repo rate unchanged

The Reserve Bank has kept the repo rate unchanged at 5.75% per annum.

“The MPC has unanimously decided to keep the repurchase rate unchanged for now,” Reserve Bank Governor Lesetja Kganyago said on Thursday.

The repo rate has remained unchanged since a 25 basis points rate hike in July 2014.

According to the Bank’s latest forecasts, inflation is now expected to average 4.8% in 2015, compared with the previous forecast of 3.8%.

A first quarter average of 4.2 percent is now projected as the low point, compared with 3.5 percent previously. The strong base effects in the first quarter of 2016 are expected to result in a temporary one-quarter breach of the inflation target during that quarter, at 6.7 percent, with the average for the year expected to measure 5.9% compared with 5.4% previously.

Inflation is expected to average 5.5% in the final quarter of the year, compared with the previous forecast of 5.3%.

The governor further added that the outlook for the economy remains overshadowed by the electricity supply constraint, which appears to have had an adverse effect on recent economic activity.

“This constraint is likely to persist for some time, and has resulted in a downward revision of short-term potential output to between 2 and 2.5%. Nevertheless, some improvement on the 2014 growth rate of 1.5 percent is expected in 2015, in the absence of protracted work stoppages,” he explained.

Additionally, the bank’s growth forecast for 2015 is unchanged at 2.2% and marginally lower at 2.3% for 2016.

The governor said that fiscal policy is set to continue on its consolidation path. “As outlined in the recent Budget Review, the projected deficit for both 2014/15 and 2015/16 is estimated at 3.9% of GDP, despite lower GDP growth forecasts, and is expected to narrow to 2.5% of GDP by 2017/18.”

The rand exchange rate continues to be the main upside risk to the inflation outlook, and remains highly vulnerable to the timing and pace of US monetary policy normalisation.

Additionally, wage and salary increases in excess of inflation and productivity growth also pose an upside risk to inflation.

“The Committee assesses the risk to the inflation outlook to be on the upside, with the possibility of further electricity tariff increases accentuating this risk,” noted the governor.

At the same time, the growth outlook remains constrained by electricity supply concerns and low business confidence, and the risks to the growth forecast are assessed to be moderately on the downside. “Demand pressures on inflation remain muted, reinforced by a moderately tighter fiscal policy stance,” said the governor.

In its previous statement the Committee noted that the more favourable inflation path allowed for some room to pause in the process of domestic monetary policy normalisation. The deterioration in the outlook suggests that this scope has narrowed.

Kganyago said that the timing of future interest rate increases will be dependent, as before, on a range of domestic and external factors.

“The MPC will remain vigilant and will not hesitate to act in order to maintain the integrity of the inflation targeting framework.” SAnews.gov.za
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