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‘Rates to be stable for 18 months’

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By Reuters

South Africa's Reserve Bank left its benchmark repo rate unchanged at 5.0 percent on Thursday, balancing weakening economic growth against a deteriorating outlook for inflation.

The central bank has left rates unchanged at all its policy meetings this year except for July, when it decided on a surprise cut of 50 basis points.

 

ANALYST COMMENT

HUGO PIENAAR, ECONOMIST, BUREAU FOR ECONOMIC RESEARCH

“It is a more hawkish statement on the inflation side, but that is not surprising.

“The statement flags the risks that are now on the upside. That is a change from a couple of MPC statements where they said inflation risks are balanced. But we know where it is coming from - the food side and the currency side.

“Then of course they make particular reference to wages, with the potential for higher wages to feed into inflation and the re-weighting and re-basing that is coming.

“So there are a number of factors that suggest that even the Reserve Bank's upward adjustment to inflation could turn out to be somewhat higher in the end.

“We held the view for quite some time that rates will be held stable for at least the next 18 months. I think that this statement probably ties in with that.”

 

LUKE DOIG, ECONOMIST, CREDIT GUARANTEE INSURANCE CORP

“It was certainly what I expected. Of concern is the fact that they downgraded their growth outlook for next year substantially. That is obviously signalling more than just concerns on the inflationary front.

“Their mandate is wider now that it is meant to take growth and employment dynamics into account, but I 100 percent support the decision. I hope it doesn't deteriorate further before the next meeting.”

 

ISAAC MATSHEGO, ECONOMIST, NEDBANK

“One thing that stood out for me were her concerns about wage settlements trends and what that could do to the inflation outlook.

“However, our view is that we are not going to see a change in monetary policy until the last meeting of the MPC next year, when we expect an upward adjustment.

 

GEORGE GLYNOS, MANAGING DIRECTOR, ETM

“They had to mention inflation if they wanted to keep credibility because it is a problem.

“She was maybe slightly less dovish than what people were expecting, which is why we've had a strong adjustment in FRA's and the rand has recovered marginally.

“I would say, probably a strengthening of the argument to keep the rates on hold for quite some time to come.”

 

ANISHA ARORA, EMERGING MARKET ANALYST, 4CAST

“Governor Marcus highlighted far too many new and re-emerging risk factors that prevent a continuation of any rate easing, particularly a weak rand, which poses an upside risk to the inflation outlook and food prices.

“On the other hand, the mining strikes have left a very negative outlook for the manufacturing and mining sector, and as we have mentioned before, increasing unit labour costs could lead to job losses and worsening employment figures.

“Overall, it is a difficult balancing act for the MPC, but after all, their mandate is to maintain price stability and thus rates were kept on hold.”

 

KEVIN LINGS, CHIEF ECONOMIST, STANLIB

“It's the right decision. Obviously the Reserve Bank is still concerned about downside risks to growth.

“Clearly food is a concern and there's likely to be further pressure there and the rand is unpredictable.

“The Reserve Bank's revised forecast is a little bit low, our number is slightly higher than that. There has to be some upside risk to inflation.”

“I think the Reserve Bank has got interest rates low enough already.”

 

PETER ATTARD MONTALTO, EMERGING MARKET ECONOMIST, NOMURA

“We still think they can cut in Q1 once growth shocks come through and there is a clearer picture of the negative impact on growth from global and domestic factors.

“Interesting change - they didn't discuss a cut this time whereas they did last time.

“There is a view developing, it seems, of the FX moves having been more important. But I think she is talking more about non-core CPI pressures than core, and I don't think it is being put as an argument for not cutting. I think simply the level of growth shock was not there to make the move.”

 

MARKET REACTION

The rand and government bonds initially firmed slightly after the central bank kept rates on hold.

However by 16:18 SA time, the rand weakened to 8.9415 against the dollar, from 8.93 just before the decision.

The yield on the 14-year benchmark bond ticked down half a basis point to 7.615 percent. - Reuters

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