Interest rates remain unchanged

The Reserve Bank will maintain current interest rates, governor Gill Marcus said on Thursday (24 May 2012).

The repo rate would again remain unchanged at 5.5 percent, the bank’s Monetary Policy Committee (MPC) decided. The prime rate would stay at nine percent.

The bank would continue to closely monitor the situation and stood ready to act in either direction, said Marcus.

Since the last meeting of the MPC, global oil prices had moderated as Saudi Arabia increased production.

Oil was trading at over US125 (about R1045) a barrel in February, but had since dropped to below US110 (about R920).

Petrol prices in South Africa increased by a cumulative 99 cents a litre in April and May.

“A sizeable reduction [in the local price] is expected in June,” Marcus said. This, despite a weaker rand-dollar exchange rate.

Inflation was forecast to average six percent in the second quarter of 2012.

An average inflation rate of five percent was forecast for 2014, dropping further in the fourth quarter of that year.

However, the situation in Europe remained volatile and unpredictable. Should Europe weaken further, South African exports would be affected.

Investment could also be affected as global risk aversion increased, the MPC said.

“We are very concerned about what is happening, and we are ready to move in either direction,” Marcus told reporters in Pretoria.

Marcus was particularly worried about the situation in Europe, one of South Africa’s main trading partners, where many countries were battling recession.

She dismissed suggestions that the Greek economy was the main worry.

“This is much bigger than the Greek effect. This is much bigger than talking about one country,” she said.

This was the ninth consecutive meeting where the repo rate remained unchanged, after it was reduced by 650 basis points between mid-2008 and November 2010.

It keeps the rate at its lowest level in over 30 years.