The repo rate will remain unchanged at 5.75%, SA Reserve Bank governor Lesetja Kganyago said in Pretoria on Thursday.<\/p>\n
Kganyago, announcing the monetary policy committee’s decision for the first time as governor since replacing Gill Marcus, said the decision was unanimous.<\/p>\n
“The committee remains of the view that interest rates will have to normalise over time,” he told reporters in Pretoria.<\/p>\n
“However, given the lower trajectory of headline inflation and the continued weak state of the economy, the MPC has unanimously decided to keep the repurchase rate unchanged at 5.75% per annum at this stage.”<\/p>\n
The timing of future interest rate increases depended on a range of factors, including inflation expectation changes, the pace of monetary policy normalisation in the United States, and the state of the domestic economy.<\/p>\n
“Since the previous meeting of the monetary policy committee, the sharp decline in international oil prices has contributed to a more benign global inflation environment,” Kganyago said.<\/p>\n
“This development may also ameliorate the deteriorating growth outlook in some regions by providing a boost to consumption expenditure.”<\/p>\n
Lower oil prices also had a favourable impact on domestic headline inflation, with the medium-term forecast improving relative to the previous forecast.<\/p>\n
“However, the underlying inflation pressures, as reflected in core inflation, persist,” he said.<\/p>\n
“The domestic growth outlook remains challenging, but after two quarters dominated by the fall-out from extended strikes, some recovery is expected, but demand remains subdued.”<\/p>\n
Improved performance in the mining and manufacturing sectors was expected in coming quarters, but the outlook was inhibited by domestic structural constraints. Further constraints were a weak global economy and the continuing drop in non-oil commodity prices.<\/p>\n
“Growth next year is expected to remain weak,” said Kganyago.<\/p>\n
The fiscal deficit was expected to drop from a projected 4.7% of GDP in the current fiscal year to three percent in 2017\/18.<\/p>\n
“This is expected to be achieved through adherence to a nominal expenditure growth ceiling, and increased tax revenues,” Kganyago said.<\/p>\n
“The ability to achieve the nominal expenditure targets will be determined to an important degree by the public sector wage settlement.”<\/p>\n
The year-on-year inflation rate, as measured by the consumer price index (CPI) for all urban areas, was 5.9% in both September and October, having been 6.4% in August.<\/p>\n
Downward pressure on inflation in October came from continued restraint in food and petrol prices.<\/p>\n
Although improved growth was expected in the third quarter, following the 0.6 percent growth in the second quarter, this was off a low base following the mining and manufacturing sector strikes.<\/p>\n
“The Bank’s forecast for GDP growth in 2014 has declined marginally from 1.5% to 1.4%, and forecasts for 2015 and 2016 have been revised down from 2.8 percent and 3.1 percent to 2.5% and 2.9% respectively.”<\/p>\n
International oil prices had declined noticeably since their recent peak in June of around US115 per barrel to current levels of below US80 per barrel.<\/p>\n
“The general expectation in the market is that these lower prices could persist for some time,” said Kganyago.<\/p>\n
“Although some of the advantage of lower international oil prices has been offset to some extent by a weaker rand exchange rate, domestic petrol prices have declined by a cumulative R1.17 per litre since August.”<\/p>\n
Should current trends continue, a further drop of around 70 cents per litre could be expected in December.<\/p>\n
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