Repo rate unchanged

"The inflation forecast remains uncomfortably close to the upper level of the inflation target range, but our central forecast remains within the target," SARB governor Gill Marcus said in announcing the decision in Pretoria.

   

"Given the increased upside risks to the outlook, we do not see room for further monetary accommodation. The MPC has decided to keep the repurchase rate unchanged at five percent per annum at this stage."

   

Marcus said the bank's Monetary Policy Committee (MPC) would carefully watch developments on an ongoing basis.

   

It was important to recognise that the economic climate was extremely difficult, and that the environment was not getting better and was prone to risk, she said.

   

The SARB lends money at the repo rate to commercial banks, which means that the prime interest rate will also remain steady at 8.5 percent.      .

   

She said the MPC had discussed raising rates, the circumstances which would warrant a rate hike and the implications thereof, but had agreed a hike would not be appropriate.

   

"The committee assesses the risks to be on the downside, amid continued supply disruptions and low business and consumer confidence," said Marcus.

   

"The downward trend of household consumption expenditure is indicative of relatively weak demand conditions in the economy, and slower bank credit extension to households is likely to reinforce this trend."

   

Marcus said that since the previous MPC meeting, the headline inflation rate had returned to within the inflation target range. 

   

Despite this development, inflation was expected to remain "uncomfortably close to the upper end of the target band".

   

The upside risks to the inflation outlook remain elevated, said Marcus.

   

Strikes in the auto industry had affected third quarter growth and the domestic growth outlook remained fragile, said Marcus.

   

"Both business and consumer confidence remain at low levels," she said.

   

"The MPC therefore continues to face the dilemma of upside risks  to inflation against a backdrop of a weaker growth outlook and a possible further depreciation of the currency."

   

The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas declined to six percent in September and 5.5 percent in October. 

   

Petrol prices increased at a year-on-year rate of 9.3 percent in October, down from 12.8 percent in September.

   

Core inflation, which excludes food, petrol and electricity, was unchanged at 5.3 percent, while administered price inflation excluding petrol increased marginally to 7.1 percent.

   

The headline producer price inflation for final manufactured goods was unchanged in September at 6.7 percent. 

   

Marcus said the bank's headline inflation was more or less unchanged since the previous MPC meeting in September.

   

"The forecast average inflation rates for 2013 and 2014 are 5.8 percent and 5.7 percent respectively, both years 0.1 percentage point lower than in the previous forecast," said Marcus.

   

"The forecast for 2015 is unchanged at 5.4 percent, with inflation expected to average 5.3 percent in the final quarter of that year."

   

Marcus said inflation was expected to remain within the target range for the entire forecast period.

   

The exchange rate of the rand remained an increasingly upside risk to the inflation outlook, Marcus said.

   

Marcus said should international oil prices and the exchange rate remain at current levels, a small increase in the domestic petrol price was likely in December.

   

-Sapa