“The MPC has decided to keep the repurchase rate unchanged at 5.0 percent per annum at this stage,” said Marcus at the last Monetary Policy Committee (MPC) meeting of 2013.
The repo rate (which is the scale at which the Reserve Bank lends money to commercial banks) has remained unchanged at 5% since July 2012.
Market expectation was for the central bank to keep the repo rate unchanged.
“We expect the MPC to retain its hawkish tone, emphasising the inflationary risks of a weak exchange rate more than the tepid growth outlook,” said Absa in a research note on Wednesday.
The MPC noted that since its last meeting, the headline inflation rate has returned to within the bank’s inflation target range of between 3 and 6%.
“Despite this favourable development, inflation is expected to remain uncomfortably close to the upper end of the target band,” said Marcus.
In October, the Consumer Price Index (CPI) slowed to 5.5% year-on-year down from the 6% recorded in September.
The bank’s inflation forecast was more or less unchanged since its last meeting with the forecast average inflation rates for 2013 and 2014 at 5.8% and 5.7% respectively.
The bank’s forecast for 2015 was unchanged at 5.4% with inflation expected to average 5.3% in the final quarter of 2013.
Core inflation for 2013 is unchanged at an average of 5.2%, but has deteriorated for 2014 when it is expected to average 5.6% compared with the forecast of 5.4% previously. The forecast for 2015 remains at 5.3%.
The MPC said that the domestic growth outlook remains fragile with third quarter growth expected to have been adversely affected by protracted work stoppages in the motor vehicle sector, which also contributed to a decline in exports.
Additionally, the central bank noted that speculation regarding tapering has been the main driver of rand exchange rate volatility since its last meeting.
The rand has depreciated by 17% against the US dollar since the beginning of the year.
Marcus said that the exchange rate of the rand remains an increasingly upside risk to the inflation outlook.
“Interest rates are still likely to remain on hold deep into 2014, while international factors threaten rand weakness,” said Nedbank economists. – SANews.gov.za