Interest Rates Remain Unchanged

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20 Mar 2013

Interest rates should remain unchanged in 2013 in light of the current domestic and global outlook, an analyst said on Wednesday.

On Wednesday, the SA Reserve Bank kept the repo rate unchanged at five percent, and the prime lending rate at 8.5 percent.

"We expect interest rates to remain unchanged in 2013, leaving South Africa's monetary policy stance quite accommodative," said Investec economist Annabel Bishop.

"Should economic growth deteriorate substantially (not our expected case) the SARB may cut interest rates by 25 basis points."

On Wednesday, the SA Reserve Bank kept the repo rate unchanged at five percent, and the prime lending rate at 8.5 percent.

Governor Gill Marcus made the announcement a few hours after Stats SA reported that Consumer Price Inflation had risen to 5.9 percent in February.

Marcus said that since the bank's last Monetary Policy Committee meeting the domestic inflation outlook had deteriorated "slightly".

However, the risk posed by the depreciation of the rand had overshadowed favourable developments such as lower electricity price increases and some moderation in food price inflation.

"The exchange rate of the rand continues to pose the main upside risk to the inflation outlook," Marcus said.

Since the beginning of 2013 the rand had depreciated by 8.4 percent against the US dollar, and fluctuated within a range of R8.45 and R9.26.

"Domestic factors contributing to the recent rand depreciation include continued work stoppages in parts of the mining sector, which also have the potential to disrupt electricity supplies, and further widening of the deficit on the current account," she said.

The central bank expected inflation to average at 5.9 percent in 2013 and 5.3 percent in 2014.

On the global front, Marcus said growth in the country's main advanced economy trading partners was less positive.

Marcus said while the mining sector had recorded a 7.3 percent year-on-year growth in January, the industry was expected to remain under pressure given the unsettled labour relations environment.

The MPC was concerned about the possible impact of excessively high wage increases on employment growth. - Sapa 

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