With analysts and the Bank expecting inflation to reach the top of its 3%-6% target band this year, the next move in interest rates could be upwards for the first time since June 2008.
Analysts said the Bank’s action in keeping rates steady was in line with expectations.
"The monetary policy committee (MPC) is of the view that the risks to the inflation outlook are on the upside," Ms Marcus said when announcing the committee’s decision at a news briefing in Pretoria yesterday.
"Given the significant upside risks to the inflation outlook, the MPC will closely monitor any indications of second-round effects on inflation emanating from these cost pressures."
The Bank adjusted its inflation forecast upwards to average 4,7% this year and 5,7% next year, mainly due to revised assumptions about world oil prices.
"The biggest risks to the inflation outlook remain food and administered prices, in particular oil prices," Ms Marcus said.
"International oil prices had already accelerated in the latter part of 2010 in response to strong global demand and this upward trend had been reinforced by the geopolitical events in North Africa and the Middle East, which have raised concerns about the security of oil supplies," she said.
Even if there is a change of rule in Libya soon and protests died out in other Middle Eastern states, underlying demand pressures should keep oil prices high.
Since the MPC last met in January, Brent crude oil prices have risen by almost $20 a barrel. Domestic petrol prices have increased by almost R1 per litre since January and are expected to rise again next month, along with an increase in the fuel levy.
But Ms Marcus would not be drawn on how high she expected the oil price to climb, or for how long. "No one knows exactly what the oil price would do," she said.
This suggests the Bank will avoid taking rash decisions given the uncertain global climate.
"Her refusal to be pushed into stating what current oil price assumptions underlie the Bank’s inflation forecast suggests that the Bank will not be pushed into a knee-jerk reflex, where they have to tighten policy a lot sooner than they are comfortable with, just because oil prices rally further," Standard Chartered economist Razia Khan said yesterday.
"This is a central bank that is hanging on to its autonomy in all senses," Ms Khan said.
In November last year, the Reserve Bank had expected inflation to average 4,3% this year and 4,8% next year.
In January it forecast an average of 4,6% this year and 5,3% next year.
The year-on-year inflation rate — as measured by the consumer price index (CPI) for urban areas — was 3,7% in January and last month, but economists said they expected food and oil prices to boost CPI eventually.
Ms Marcus said the possibility of raising rates was not brought up in discussions at the two-day MPC meeting, but she said rates would have to rise eventually.
Analysts expect this in the fourth quarter of this year or the first quarter of next year.
"In view of the deterioration in the inflation outlook, it is difficult envisaging the Bank maintaining a steady hold on monetary policy indefinitely, without hiking the policy rate at some point," Brait economist Colen Garrow said. "An added caution is the shift in sentiment towards emerging markets, and towards SA in particular, where nonresidents have lightened their portfolio capital inflows by R18bn."
Mr Garrow said if SA’s "forward rate agreement market continued to be a reliable leading indicator of interest rate direction, it can be expected that the policy rate may tighten by 100 basis points (one percentage point) in the fourth quarter of 2011".
Ms Marcus said wage settlements posed an inflation risk. "High real wage settlements have been a significant upside risk to the inflation outlook. However, there are indications that nominal wage settlement rates may be moderating."
Andrew Levy Employment Publications found the overall average wage settlement rate in collective bargaining agreements was 8,2% last year, compared to 9,3% in 2009.
"Similarly, the downward trend in year-on-year growth in unit labour costs continued into the fourth quarter of 2010 when it measured 7,7%, compared with 9,3% in the previous quarter," Ms Marcus said.
"This positive trend, if continued, may contribute meaningfully to ... low inflation and employment creation."
The Congress of South African Trade Unions said it was "bitterly disappointed" that the Bank had "missed an opportunity" to cut rates and stimulate industry.
Business Unity SA (Busa) agreed with the Bank that the cost-push inflation that may emerge in the near future may not be responsive to monetary policy. "It is also clear that administered prices play an important part in creating upside risks for the inflation outlook," Busa said.
Source: Business Day
Gil,is it true that SA's gold reserves are stored at the Bank of England ? Or that billions of rands worth of gold bullion was stolen out of SARB vaults?
ReplyDelete