THE Reserve Bank’s monetary policy committee (MPC) has kept the repo rate unchanged at 5% following its three-day meeting in Pretoria.
Inflation rose slightly more than expected for the second consecutive month in October, reducing the Bank’s ability to cut rates to spur economic activity in a slowing growth environment. The weaker rand and a deteriorating current account deficit also weighed on its ability to move rates lower.
Economists had therefore expected the Bank to keep rates steady, though the tone of its announcement on Thursday will be closely scrutinised for clues to its actions in the months ahead.
Reserve Bank governor Gill Marcus on Thursday said the growth outlook had deteriorated and there were upside risks to the inflation outlook.
She also said the MPC had expressed concern about recent wage settlements in the wake of wildcat strikes in the mining and agricultural sectors, and that there was a danger of a wage price spiral.
Most analysts had expected the MPC to adopt a less "dovish" stance than it took at its last policy meeting in September in the face of rising inflation.
The rand is unlikely to recover from its latest bout of weakness soon and this will put upward pressure on inflation, which could breach its official 3%-6% target early next year.
On Thursday, Ms Marcus said the MPC expected inflation to average 5.5% in 2013, but admitted there was a risk it could breach the target range.
The currency has slid more than 5% since the Bank’s last policy meeting in September and more than 3% on a trade-weighted basis. A weaker currency raises the cost of imports, which fans price pressures in the economy.
The increase would also partly stem from the fact that new calculations of consumer price data — due to take effect in January — will give considerably more weight to inflationary factors such as electricity prices and petrol.
There had been some speculation that there was scope for interest rates to fall again this year after a surprise reduction in July, given the fragility of both the domestic and the global economy, but Ms Marcus made it clear in comments after the Bank’s September policy meeting that this was not a foregone conclusion.
Statistics South Africa figures released on Wednesday showed that prices rose 0.6% on average between September and last month, mainly on elevated food and transport costs. The inflation rate was at 5.6% last month.
With Ntsakisi Maswanganyi and Mariam Isa