S.Africa’s MPC keeps rates on hold at 5.5% - CNBC Africa

S.Africa’s MPC keeps rates on hold at 5.5%

Southern Africa

by admin 0

Reserve bank governor Gill Marcus. PHOTO: Grocott's Mail

“The monetary policy committee is acutely aware of the policy dilemma of rising inflation pressures in a subdued economic growth environment,” said Gill Marcus, South African Reserve Bank (SARB) governor, at the Monetary Policy Committee meeting.

“Despite a marginal improvement in the medium term inflation forecast, the trajectory remains uncomfortably close to the end of the target range.”

The SARB had raised interest rates by 50 basis points for the first time in six years in January, in an effort to keep inflation under control and salvage the battered rand.

(READ MORE: S.Africa joins emerging market peers and raises rates)

The rand, like all other emerging market currencies, had come under severe pressure following the implementation of federal tapering by the US Federal Reserve.

“The main upside risk to the forecast continues to come from the exchange rate, which despite the recent relative stability, remains vulnerable to global rebalancing,” Marcus explained.

According to the National Treasury 2013 budget review, South Africa’s economy continues to grow but at a much slower rate than previously expected.

(WATCH VIDEO: S.Africa's reserve bank holds interest rate)

The review projected GDP growth for the country at 2.7 per cent in 2013 and 3.7 per cent in 2014.

Marcus added that exchange rate had been the main driver of the rand petrol price, which increased by 75 cents per litre in February and March.

The recent appreciation of the rand resulted in a current over-recovery of the petrol price, which is now expected to partly offset the 20 cent per litre fuel levy increase, which is due to be implemented in April.

(READ MORE: S.Africa's rand still vulnerable despite rate hike)

The reserve bank’s forecast for headline inflation was unchanged for 2014, and is expected to average 6.3 per cent, with a peak of 6.6 per cent still expected in the fourth quarter.

“Inflation is still expected to breach the upper end of the target rage in the second quarter of 2014, and to return to within the target range in the second quarter of 2015, when it is expected to measure 5.9 per cent,” said Marcus.