Reserve Bank Raises Repo Rate by 0.25%

By Oliver Ngwenya    18-Jul-2014 03:58 UTC+02:00
Image: FS Times

Image: FS Times

In a decision that was not unanimous, the Reserve Bank’s Monetary Policy Committee (MPC) has decided to raise the repo rate by 25 basis points to 5.75%, effective from July 18.

The governor of the SARB, Gill Marcus explained that the monetary policy remained keen to support the domestic economy, adding that any future moves by the bank would depend, to a large extent, on the information available to it. In an attempt to justify the slight increase, Marcus said that it was a balance between a weak economic growth and an ever increasing inflation. Allaying recession fears, she told the meeting that the country was officially not in a recession but the main problem was that there is very low growth.

Moving on to the gross domestic product, the governor said that this had declined somewhat and that her bank projected an average of 1.7% growth in 2014. This, she added, was based on the assumption that there would be a speedy resolution to the NUMSA strike. This projection reflected a decline in the bank’s earlier projections of 2.1% and 2.8% earlier in the year. Another revision is the fact that growth forecasts for the coming two calendar years have been reduced to 2.9% and 3.2% from 3.1% and 3.4% respectively. Explaining this revision, Gill Marcus said that the economic growth outlook had deteriorated because of the protracted strike action in the most critical sectors of the South African economy, that is, the mining and manufacturing sectors.

Turning to inflation, she said that this was now expected to average 6.3% as contrasted with 6.2% which had been previously projected. This, she attributed to food prices, which she referred to as the main drivers of inflation. The only silver lining in her message was that she expected that inflation was about to reach its peak. Furthermore, she said that core inflation, which is that inflation that excludes food, fuel and electricity, had remained unchanged at 5.5% for the third month running in May. Another driver she attributed to inflation was the rand exchange rate which peaked at 10.60 to 10.80 range against the American dollar at the beginning of June.

Gill Marcus emphasized that the platinum strike had negatively affected the economy. However, she intimated that the fuel prices had remained stable as these were driven by the exchange rate.

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