Repo rate remains unchanged | Infrastructure news

The repo rate will remain unchanged at 5.75%, new Reserve Bank Governor Lesetja Kganyago said on Thursday.

“Given the lower trajectory of headline inflation and the continued weak state of the economy, the MPC has unanimously decided to keep the repurchase rate unchanged at 5.75% per annum at this stage,” said Governor Kganyago.

This was his maiden monetary policy statement since taking over the reins from Gill Marcus on 9 November.

The repo rate has remained unchanged since a 25 basis point rate hike at the Monetary Policy Committee meeting in July.

The new Governor said that domestic growth outlook remains challenging following two quarters dominated by the fall-out from extended strikes, some recovery is expected, but demand remains subdued.

The coming quarters are expected to see an improved performance in the mining and manufacturing sectors, but the outlook is inhibited by domestic structural constraints, as well as by a weak global economy and the continued declining trend in non-oil commodity prices.
“Growth next year is expected to remain weak,” he said.

Consumer Price Index

In September, and October the Consumer Price Index (CPI), which is used to measure inflation, came in at 5.9%. The bank’s forecast headline inflation improved since the last meeting of the MPC in September due to declining international oil prices.

The central bank is expected to average 5.9% in the final quarter of 2014 and average 6.1% for the year compared with 6.2% previously.

This downward trend is expected to continue into next year with inflation forecast to reach 5.1% in the second quarter and average 5.3% for the year.

The forecast for core inflation, by contrast, is more or less unchanged at an average 5.6% and 5.7% in 2014 and 2015 respectively, reaching a peak of 5.9% in the first quarter of 2015 (previously 5.8%).

The central bank noted that food price inflation remains a major driver of inflation but is expected to moderate in the coming months.

The rand, GDP growth and the exchange rate.

When coming to the rand, the currency is expected to remain susceptible to sudden shifts in sentiment regarding changes in monetary policy stances in the advanced economies, and the continued uncertainty regarding the extent to which US normalisation is already priced in to the exchange rate.

“The rand is likely to remain more sensitive to changes in financial conditions in the US than in Japan and the Eurozone.”

The Bank’s forecast for GDP growth in 2014 has declined marginally from 1.5% to 1.4%, and forecasts for 2015 and 2016 have been revised down from 2.8% and 3.1% to 2.5% and 2.9% respectively.

The new Governor said the domestic growth outlook remains challenging.

At the same time, despite its recent relative stability, the exchange rate remains an upside risk to the inflation outlook, vulnerable to changing perceptions of the timing of global monetary policy adjustments, and the slow pace of contraction in the current account deficit. The extent to which policy normalisation is already priced.

Another upside risk to inflation comes from a possible increase in wage settlement rates in excess of inflation.

“The timing of future interest rate increases will be dependent on a range of factors, including the evolution of inflation expectations, the speed of normalisation of monetary policy in the US and the state of the domestic economy,” he said.

Thursday’s MPC briefing was the last one for 2014. – SAnews.gov.za

 

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