Marcus keeps rates on hold

Category Property News

The SA Reserve Bank has left the repo rate unchanged at 5.5 percent, governor Gill Marcus said on Thursday. The prime rate would stay at nine percent. This was in line with market expectations and kept the rate at its lowest level in over 30 years. It was the bank's third consecutive meeting at which it had left the rate unchanged, after it was reduced by 650 basis points between mid-2008 and December 2010. In a Bloomberg poll, all 20 economists agreed the repo rate would be left unchanged. Reuters surveyed 28 economists who also saw the repo rate holding steady. Marcus warned the inflation outlook had deteriorated further, and this could see the repo rate temporarily breach the upper target band in the first quarter of 2012. "Inflation is now expected to reach the upper limit of the inflation target range during the final quarter of 2011, and to peak at 6.3 percent in the first quarter of 2012 before returning to within the target range by the second quarter of 2012 and remaining close to the upper limit of the range for the rest of that year," Marcus said. The target inflation range is between three and six percent. She said inflation was expected to average 5.1 percent in 2011 and six percent in 2012. This was higher than the previous SARB forecast. The average inflation rate for 2010 was 4.3 percent and in 2009 it was 7.1 percent. "The upward adjustment is mainly due to revised assumptions regarding administered price increases over the forecast period," Marcus said. She said the main risks to the inflation outlook continued to come from cost-push pressures, including administered prices. "The acceleration in food price inflation is expected to persist for some time, despite indications that global food price inflation may have peaked." Given the risks to increasing the inflation rate, the Monetary Policy Committee (MPC) would "monitor closely any indications of second round effects on inflation emanating from these cost pressures". "The MPC will not hesitate to respond timeously to signs that threaten to move inflation out of the target range on a sustained basis," Marcus added. The governor said South Africa's economic growth was lower than its emerging market peers. The SARB forecast domestic economic growth of 3.6 percent for 2011. This was lower than its previous 3.7 percent prediction. Economic growth for 2012 was now forecast at 3.9 percent.