Reserve Bank leaves repo rate unchanged at 5%

Posted On Friday, 19 July 2013 08:26 Published by Commercial Property News
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The Reserve Bank’s Monetary Policy Committee (MPC) left the repo rate unchanged at 5,0%, in line with the market expectations.

Reserve Bank Governor Gill Marcus

  • Inflation projections have been revised upwards mainly due to the rand’s weakness. The currency weakness, food prices and high wage settlements pose upside risks to inflation.
  • Growth forecasts have again been revised downwards as the economy shows increased signs of vulnerability.
  • The MPC’s decision to leave the repo rate unchanged was in line with Nedbank's market expectations. 

The Reserve Bank’s Monetary Policy Committee (MPC) once again left the repo rate unchanged at 5,0%, with the Governor highlighting that the committee continues to face the dilemma of a widening output gap against the backdrop of a worsening inflation environment.

The MPC indicated that it has tolerated the inflation rate close to the upper level of the inflation target band as the underlying economy has remained weak and the pass through effect of the rand’s weakness to inflation has so far been subdued. However, the Governor warned that further rand weakness could have a more significant impact on inflation. 

The Reserve Bank’s short-term inflation projections have deteriorated since the last MPC meeting, mainly due to the rand’s weakness and higher than expected fuel price increases.

Consumer inflation is now projected to average 5,9% (previously 5,8%) in 2013, 5,5% (previously 5,2%) in 2014 and 5,2% (previously 5,2%) in 2015. The SARB still expects inflation to rise above the 6% upper limit of the target band only temporarily, averaging 6,3% (previously 6,1%) in the third quarter of 2013. Core inflation is still expected to average 5,3% in 2013, 5,2% (previously 5,0%) in 2014 and 5,0% (previously 4,6%) in 2015. Core CPI is projected to peak at 5,5% in the fourth quarter of this year.

The domestic growth outlook has deteriorated further and risks to economic growth remain on the downside. As a result the SARB’s gdp growth projections have been revised to 2,0% (from 2,4%) in 2013, 3,3% (from 3,5%) in 2014 and 3,6% (from 3,8%) in 2015. The output gap will remain wide and start narrowing only in 2015, when the economy is likely to grow in line with its long-term potential rate.

Inflation expectations have remained well anchored around the upper limit of the inflation target band. According to the Bureau of Economic Research’s Survey of Inflation Expectations for the second quarter, headline inflation is projected to average 6,0% in 2013 (unchanged from the first
quarter) and 6,1% in both 2014 (marginally up from 6,0% in the first quarter) and 2015 (unchanged from the first quarter).

MPC also highlighted that the global economic growth outlook has remained fragile as the Eurozone recession persists and systematically important emerging markets like China lose momentum.

Source: Nedbank 

Last modified on Friday, 19 July 2013 09:02

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