SARB MPC decision on the repo rate

The [SA] Monetary Policy Committee decided to leave the repo rate unchanged at 6,5 per cent per year.

SARB Monetary policy stance: The assessment of the Monetary Policy Committee is that inflation is likely to remain within the inflation target range over the forecast period, and that the economy is expected to continue on a recovery path. The risks to the inflation forecast are seen to be more evenly balanced than at the previous meeting of the MPC. The main risks to the inflation outlook emanate from administered price developments and from the risks emanating from the global economy. The domestic growth outlook will continue to be affected by the global developments. The MPC will continue to monitor these developments closely.

For these reasons, the MPC deems it appropriate to maintain the current stance of monetary policy. Accordingly the repurchase rate remains unchanged at 6,5 per cent per annum.

Comment from Standard Bank: Data releases of the last few weeks have not presented any major surprise as to the overall picture of the South African economy. The data can be summarised as a confirmation that the local economy is growing as expected with a few weak spots and that inflation is declining at a slightly faster pace than originally envisaged. The latest data on the growth performance (the final quarter of last year), showed relatively solid growth given the stage of the business cycle, supported by cautious, positive growth in household consumption expenditure and changes in inventories, as anticipated. The forecast of the SARB for GDP growth in 2010 is 2.7% to be followed by 3.6% in 2011. Capacity utilisation in the economy is low as the economy emerges from the recession, suggesting that no inflationary pressures could emanate from that direction.

Clearly, the impact of the lowest interest rate in 28 years will stimulate the economy. Nonetheless, a number of uncertainties remain: for example, the possibility of a double dip in the growth of important global markets, global growth, especially in the Far East, could continue supporting domestic GDP growth, the turmoil in Europe could spill over to more countries and could impact adversely on South Africa, household debt is still at elevated levels and the general appetite for credit, constrained by still-strict credit criteria (despite some signs of loosening) and employment losses, is exceptionally weak.

See the latest Statementof the Monetary Policy Committee and Standard Bank's Monetary Policy Alert.