South African Reserve Bank Leaves the Repo Rate Unchanged at 5%

The Monetary Policy Committee of the South African Reserve Bank decided on May 23rd to leave the main interest rate unchanged at 5.0 percent, citing concerns about a lower rand exchange rate and weak economic growth.

Excerpt from the statement by the South African Reserve Bank:

The Monetary Policy Committee (MPC) is increasingly concerned about the deteriorating outlook for the South African economy. There are a number of critical domestic issues that are contributing to the vulnerability of the economy that need to be urgently addressed. These include the financing of the deficit on the current account of the balance of payments; the fractious labour relations environment and the associated risks of protracted work stoppages and excessive wage increases; electricity supply constraints; upside risks to inflation; downside risks to growth and employment creation in a context of high unemployment; and declining domestic and foreign investor confidence which could impact directly on capital flows. These interrelated developments are reflected in the volatility and weakness in the exchange rate. There is an urgent imperative for all parties – government, business, labour and civil society – to interact and address these issues and vulnerabilities at a national level. While the Bank is prepared to play its part, many of these challenges are beyond the role, scope and effectiveness of monetary policy.

While a depreciated exchange rate is part of the balance of payments adjustment mechanism, the competitive advantages thereof need to be realised through price and wage restraint. In the absence of such restraint, the outcome is simply higher inflation with the risk of an exchange rate-inflation spiral. Given the current unsettled environment in the economy, the MPC assesses the risks to inflation to be on the upside, while many of the above factors contribute to a downside risk to growth.

The MPC assesses the current stance of monetary policy to be accommodative. Given the risks outlined above, the scope for further monetary easing is limited at this stage. The MPC has therefore decided to leave the repurchase rate unchanged at 5 per cent per annum.

South African Reserve Bank Leaves the Repo Rate Unchanged at 5%

South African Reserve Bank | Joana Taborda |
5/23/2013 2:41:26 PM