Monetary policy stance
The assessment of the Monetary Policy Committee is that the improved inflation outlook creates sufficient room for monetary policy to provide additional stimulus to the somewhat fragile recovery of the domestic economy which remains vulnerable to the uncertain global environment.
The MPC has decided to reduce the repurchase rate by 50 basis points to 6,0 per cent per annum with effect from 10 September 2010. The MPC views this action to be consistent with the continued attainment of the inflation target, having given due regard to the risks to the outlook. The scope for further downward movement is seen to be limited, but this will be assessed on an ongoing basis. Our approach remains forward-looking and is informed by close examination of the data and future developments.
Showing posts with label repo rate. Show all posts
Showing posts with label repo rate. Show all posts
Thursday, September 9, 2010
Thursday, May 13, 2010
SA Repo Rate Unchanged at 6.5%
SARB - Repo Rate Decision 13/05/2010
The assessment of the Monetary Policy Committee is that inflation is likely to remain within the inflation target range over the forecast period, and that the economy is expected to continue on a recovery path. The risks to the inflation forecast are seen to be more evenly balanced than at the previous meeting of the MPC. The main risks to the inflation outlook emanate from administered price developments and from the risks emanating from the global economy. The domestic growth outlook will continue to be affected by the global developments. The MPC will continue to monitor these developments closely.
For these reasons, the MPC deems it appropriate to maintain the current stance of monetary policy. Accordingly the repurchase rate remains unchanged at 6,5 per cent per annum.
The assessment of the Monetary Policy Committee is that inflation is likely to remain within the inflation target range over the forecast period, and that the economy is expected to continue on a recovery path. The risks to the inflation forecast are seen to be more evenly balanced than at the previous meeting of the MPC. The main risks to the inflation outlook emanate from administered price developments and from the risks emanating from the global economy. The domestic growth outlook will continue to be affected by the global developments. The MPC will continue to monitor these developments closely.
For these reasons, the MPC deems it appropriate to maintain the current stance of monetary policy. Accordingly the repurchase rate remains unchanged at 6,5 per cent per annum.
Thursday, March 25, 2010
The S.A. Reserve Bank Reduces Repo Rate by 0.5 Basis Points
1. Introduction
The domestic economy has shown signs of moderate improvement since the previous meeting of the Monetary Policy Committee. Inflation expectations have moderated. Inflation has returned to within the target range and is expected to remain there for the remainder of the forecast period. The risks to the inflation outlook have declined somewhat as a result of the continued appreciation of the exchange rate of the rand and greater certainty with respect to future electricity tariff increases. Household consumption expenditure is growing at positive, albeit low rates, but growth in private sector fixed capital formation remains negative.
2. Recent developments in inflation
The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas returned to within the inflation target range sooner than expected, in February 2010, when it measured 5,7 per cent. The moderation in inflation was fairly broad-based. The main contributors to the inflation outcome were the categories of housing and utilities and miscellaneous goods and services. The former category was driven mainly by electricity price increases of 26,8 per cent, while the latter category was driven by insurance costs relating to housing, health and transport. Food price inflation declined to 1,0 per cent, while communication costs declined by 22,0 per cent. Administered prices excluding petrol and paraffin increased by 10,8 per cent.Producer price inflation increased to 3,5 per cent in February 2010, compared with 2,7 per cent in the previous month. Food price inflation at the producer level remained well contained. Agricultural food prices declined at a year-on-year rate of 13,5 per cent, while manufactured food prices declined by 1,2 per cent.
3. The outlook for inflation
The CPI forecast of the South African Reserve Bank (the Bank) indicates an improved inflation outlook during 2010 and a relatively unchanged outlook for 2011. Inflation is expected to average 5,3 per cent and 5,4 per cent in 2010 and 2011 respectively, and to reach a low point at an average of 4,9 per cent during the third quarter of 2010. There is now greater certainty with respect to electricity tariff increases following the decision by the National Energy Regulator of South Africa (Nersa) to grant price increases to Eskom in the order of 25 per cent per annum, which was in line with the Bank’s previous assumptions. However, because lower increases were granted to municipalities, the current forecast makes provision for electricity tariff increases of 20 per cent during the third quarters of 2010 and 2011. Other factors contributing to the improved expected inflation trajectory include favourable food price developments as well as lower-than-expected inflation outcomes. The Survey of Inflation Expectations published by the Bureau for Economic Research (BER) at Stellenbosch University shows a significant improvement in the first quarter of 2010, although expectations remain on average above the upper end of the target range. Average headline CPI inflation expectations in respect of 2010 declined from 7,7 per cent during the final quarter of 2009 to 6,5 per cent during the first quarter of 2010. Inflation expectations in respect of 2011 declined from 7,7 per cent to 6,7 per cent, and the expectation for 2012 is 6,8 per cent. The improved outlook was mainly due to the favourable change in the expectations of business sector and labour union respondents. The expectations of analysts remained more or less unchanged.Inflation expectations in the financial markets also reflected a more favourable inflation outlook. The Reuters survey of financial analysts shows some improvement relative to the previous month. Inflation expectations as measured by the yield differential between conventional government bonds and inflation-linked bonds across all maturities declined since January and reflect expectations within the target range over longer maturities.Growth in domestic expenditure appears to be recovering at a modest pace but does not currently pose an upside risk to the inflation outlook. Following five consecutive quarters of negative growth, real household consumption expenditure increased at an annualised rate of 1,4 per cent in the fourth quarter of 2009. While expenditure growth on non-durable and semi-durable goods contracted, expenditure on durable goods, particularly motor vehicles, increased. Wholesale and retail trade sales in January appear to confirm this trend as positive month-on-month growth was experienced. Consumer confidence, as reflected in the FNB/BER Consumer Confidence Index, showed a significant recovery.The turnaround in household consumption expenditure is expected to continue at a slow pace. The improvements in the domestic equity markets appear to have reversed the negative wealth effects on consumption. Nevertheless the recovery in household consumption expenditure is expected to be constrained by the levels of household indebtedness, which increased to 79,8 per cent of disposable income of households in the fourth quarter of 2009. Other constraining factors include the strict credit criteria applied by banks, and persistently high levels of unemployment.Growth in total loans and advances to the private sector has been negative since September 2009, and declined further at a twelve-month rate of 1,2 per cent in January. Mortgage credit extension was again the only category that showed positive growth, while loans to companies declined further. The subdued credit extension data are a function of both demand and supply side effects. The strict credit criteria applied by banks have been partly a result of the rising levels of impaired advances which now appear to be leveling off. In January 2010, impaired advances as a percentage of total gross loans and advances declined slightly to 5,9 per cent. A significant proportion of these impairments relate to retail loans, reflecting continued pressure on the consumer. There are indications that the decline in employment in the formal non-agricultural sector appears to have slowed. According to the Quarterly Employment Survey, 18,000 jobs were created in the final quarter of 2009. However, on a seasonally adjusted basis, employment declined by 0,7 per cent, following the 5,1 per cent decline in the previous quarter. Cyclical employment trends tend to lag the upturn in the economy, and the impact of the recession on employment will take some time to be reversed.A countercyclical fiscal policy stance has been maintained. The national government deficit is projected to equal 7,2 per cent of GDP in the 2009/10 fiscal year and then to narrow over the next three years as the economy recovers, and to measure 4,7 per cent in the 2012/13 fiscal year. The public sector borrowing requirement is expected to reach 11,8 per cent of GDP, and the overall government debt to GDP ratio is expected to peak at 43 per cent in the medium term. Should this fiscal trajectory be maintained, the MPC does not foresee a possible conflict with monetary policy objectives. The economic growth outlook has improved somewhat over the past few months, although the output gap is expected to remain positive for some time. The 3,2 per cent annualised growth rate recorded in the fourth quarter of 2009 confirmed that the economy has emerged from the recession, and the latest forecast of the Bank is that growth is likely to average 2,6 per cent in the current year. Although this compares favourably with the growth experienced in 2009, it is nevertheless still low. The manufacturing sector in particular grew relatively strongly in the last two quarters of 2009, although off a low base, following four consecutive quarters of negative growth. The Kagiso/BER Purchasing Managers Index indicates that this trend is likely to continue. Business confidence, as measured by the RMB/BER Business Confidence Index also showed an improvement but remains negative. The sustainability of the recovery in domestic growth will be influenced to a significant degree by the global growth trends. The pattern of the global economic recovery has remained unchanged with strong growth being recorded in Asia in particular, and more moderate growth in a number of countries in Latin America and Africa. The outlook for the United States and Europe is less positive with increased concerns about the sustainability of burgeoning fiscal deficits and government debt ratios. In the United States, the weak housing market also remains a constraint on household consumption expenditure. Although a number of countries have begun to normalise their policy rates, monetary and fiscal stimuli still remain in place in most industrialised economies, and indications are that there will not be an early reversal of these accommodative policies. Against this backdrop, the benign global inflation environment is expected to persist, and the risk of imported inflation is relatively low. While an appreciated rand exchange rate is a positive factor in the inflation outlook, an excessively strong exchange rate is a cause for concern from the perspective of overall macroeconomic balance. It is difficult to determine with precision an appropriate level of the exchange rate, but at recent levels the exchange rate may contribute to constraints in the recovery of export and import-competing sectors of the economy. Since the previous meeting of the MPC, the rand has appreciated from levels of around R7,60 against the US dollar to current levels of around R7,35. On a trade-weighted basis, the rand has appreciated by about 6 per cent since the previous meeting and by 3 per cent since the beginning of the year. The trade-weighted exchange rate was also influenced by the recent weakness in the euro and pound sterling against the US dollar. Since the previous meeting, the rand has appreciated by about 8 per cent and 11 per cent against the euro and pound sterling respectively. A number of factors continue to impact on the exchange rate of the rand. These include the sustained capital inflows into emerging markets in general in response to abnormally low interest rates in advanced economies, investor sentiment, and the recovery in commodity prices. The latter contributed to the narrowing of the deficit on the current account of the balance of payments in the final quarter of 2009 to 2,8 per cent of GDP. Other supply side or exogenous factors are not expected to impart a significant upside risk to the inflation forecast. International oil prices have remained relatively stable in the US$70-US$80 dollar range, and moderate increases over the forecast period have been incorporated into the inflation forecast. Nevertheless an increase in the order of 50 cents per litre has been assumed for April, about half of which is due to increased fuel levies announced in the budget.Domestic food prices, which for most of last year were one of the main sources of upside risk to the inflation outlook, have recently contributed favourably to the inflation outlook. In the past few weeks, maize prices have declined significantly, despite an upward trend in other food prices globally. While it is not clear at this stage to what extent these price declines will be passed on to the consumer, these developments should at least constrain food price increases for some time.Wage settlements continue to indicate some moderation but remain positive in real terms. The ratio of total compensation of employees to real GDP declined from 10,1 per cent in the year to the third quarter of 2009 to 9,2 per cent in the year to the fourth quarter. Nominal unit labour costs increased from 5,7 per cent in the third quarter to 8,8 per cent in the fourth quarter of 2009, but this figure was distorted by significant once-off adjustments to some public sector pay scales. Despite the reduced uncertainty associated with the electricity tariff increases, electricity and other administered price increases remain a threat to the inflation outlook. Of concern is the apparent trend towards greater reliance on high tariff increases to finance long term infrastructural expenditure projects. These increases are in effect relative price changes or implicit tax increases. However they contribute to the general inflation environment and remain a challenge for monetary policy.
4. Monetary policy stance
The assessment of the Monetary Policy Committee is that despite clear signs that the economy has emerged from the recession, the pace of recovery is expected to remain slow. The improved inflation environment has provided some space for an additional monetary stimulus to reinforce the sustainability of the upswing without jeopardising the achievement of the inflation target. The MPC has therefore decided to reduce the repurchase rate by 50 basis points to 6,5 per cent per annum with effect from 26 March 2010. The MPC will continue to assess developments, and will adjust the monetary policy stance when necessary in order to achieve the inflation target. Gill MarcusGOVERNOR
The domestic economy has shown signs of moderate improvement since the previous meeting of the Monetary Policy Committee. Inflation expectations have moderated. Inflation has returned to within the target range and is expected to remain there for the remainder of the forecast period. The risks to the inflation outlook have declined somewhat as a result of the continued appreciation of the exchange rate of the rand and greater certainty with respect to future electricity tariff increases. Household consumption expenditure is growing at positive, albeit low rates, but growth in private sector fixed capital formation remains negative.
2. Recent developments in inflation
The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas returned to within the inflation target range sooner than expected, in February 2010, when it measured 5,7 per cent. The moderation in inflation was fairly broad-based. The main contributors to the inflation outcome were the categories of housing and utilities and miscellaneous goods and services. The former category was driven mainly by electricity price increases of 26,8 per cent, while the latter category was driven by insurance costs relating to housing, health and transport. Food price inflation declined to 1,0 per cent, while communication costs declined by 22,0 per cent. Administered prices excluding petrol and paraffin increased by 10,8 per cent.Producer price inflation increased to 3,5 per cent in February 2010, compared with 2,7 per cent in the previous month. Food price inflation at the producer level remained well contained. Agricultural food prices declined at a year-on-year rate of 13,5 per cent, while manufactured food prices declined by 1,2 per cent.
3. The outlook for inflation
The CPI forecast of the South African Reserve Bank (the Bank) indicates an improved inflation outlook during 2010 and a relatively unchanged outlook for 2011. Inflation is expected to average 5,3 per cent and 5,4 per cent in 2010 and 2011 respectively, and to reach a low point at an average of 4,9 per cent during the third quarter of 2010. There is now greater certainty with respect to electricity tariff increases following the decision by the National Energy Regulator of South Africa (Nersa) to grant price increases to Eskom in the order of 25 per cent per annum, which was in line with the Bank’s previous assumptions. However, because lower increases were granted to municipalities, the current forecast makes provision for electricity tariff increases of 20 per cent during the third quarters of 2010 and 2011. Other factors contributing to the improved expected inflation trajectory include favourable food price developments as well as lower-than-expected inflation outcomes. The Survey of Inflation Expectations published by the Bureau for Economic Research (BER) at Stellenbosch University shows a significant improvement in the first quarter of 2010, although expectations remain on average above the upper end of the target range. Average headline CPI inflation expectations in respect of 2010 declined from 7,7 per cent during the final quarter of 2009 to 6,5 per cent during the first quarter of 2010. Inflation expectations in respect of 2011 declined from 7,7 per cent to 6,7 per cent, and the expectation for 2012 is 6,8 per cent. The improved outlook was mainly due to the favourable change in the expectations of business sector and labour union respondents. The expectations of analysts remained more or less unchanged.Inflation expectations in the financial markets also reflected a more favourable inflation outlook. The Reuters survey of financial analysts shows some improvement relative to the previous month. Inflation expectations as measured by the yield differential between conventional government bonds and inflation-linked bonds across all maturities declined since January and reflect expectations within the target range over longer maturities.Growth in domestic expenditure appears to be recovering at a modest pace but does not currently pose an upside risk to the inflation outlook. Following five consecutive quarters of negative growth, real household consumption expenditure increased at an annualised rate of 1,4 per cent in the fourth quarter of 2009. While expenditure growth on non-durable and semi-durable goods contracted, expenditure on durable goods, particularly motor vehicles, increased. Wholesale and retail trade sales in January appear to confirm this trend as positive month-on-month growth was experienced. Consumer confidence, as reflected in the FNB/BER Consumer Confidence Index, showed a significant recovery.The turnaround in household consumption expenditure is expected to continue at a slow pace. The improvements in the domestic equity markets appear to have reversed the negative wealth effects on consumption. Nevertheless the recovery in household consumption expenditure is expected to be constrained by the levels of household indebtedness, which increased to 79,8 per cent of disposable income of households in the fourth quarter of 2009. Other constraining factors include the strict credit criteria applied by banks, and persistently high levels of unemployment.Growth in total loans and advances to the private sector has been negative since September 2009, and declined further at a twelve-month rate of 1,2 per cent in January. Mortgage credit extension was again the only category that showed positive growth, while loans to companies declined further. The subdued credit extension data are a function of both demand and supply side effects. The strict credit criteria applied by banks have been partly a result of the rising levels of impaired advances which now appear to be leveling off. In January 2010, impaired advances as a percentage of total gross loans and advances declined slightly to 5,9 per cent. A significant proportion of these impairments relate to retail loans, reflecting continued pressure on the consumer. There are indications that the decline in employment in the formal non-agricultural sector appears to have slowed. According to the Quarterly Employment Survey, 18,000 jobs were created in the final quarter of 2009. However, on a seasonally adjusted basis, employment declined by 0,7 per cent, following the 5,1 per cent decline in the previous quarter. Cyclical employment trends tend to lag the upturn in the economy, and the impact of the recession on employment will take some time to be reversed.A countercyclical fiscal policy stance has been maintained. The national government deficit is projected to equal 7,2 per cent of GDP in the 2009/10 fiscal year and then to narrow over the next three years as the economy recovers, and to measure 4,7 per cent in the 2012/13 fiscal year. The public sector borrowing requirement is expected to reach 11,8 per cent of GDP, and the overall government debt to GDP ratio is expected to peak at 43 per cent in the medium term. Should this fiscal trajectory be maintained, the MPC does not foresee a possible conflict with monetary policy objectives. The economic growth outlook has improved somewhat over the past few months, although the output gap is expected to remain positive for some time. The 3,2 per cent annualised growth rate recorded in the fourth quarter of 2009 confirmed that the economy has emerged from the recession, and the latest forecast of the Bank is that growth is likely to average 2,6 per cent in the current year. Although this compares favourably with the growth experienced in 2009, it is nevertheless still low. The manufacturing sector in particular grew relatively strongly in the last two quarters of 2009, although off a low base, following four consecutive quarters of negative growth. The Kagiso/BER Purchasing Managers Index indicates that this trend is likely to continue. Business confidence, as measured by the RMB/BER Business Confidence Index also showed an improvement but remains negative. The sustainability of the recovery in domestic growth will be influenced to a significant degree by the global growth trends. The pattern of the global economic recovery has remained unchanged with strong growth being recorded in Asia in particular, and more moderate growth in a number of countries in Latin America and Africa. The outlook for the United States and Europe is less positive with increased concerns about the sustainability of burgeoning fiscal deficits and government debt ratios. In the United States, the weak housing market also remains a constraint on household consumption expenditure. Although a number of countries have begun to normalise their policy rates, monetary and fiscal stimuli still remain in place in most industrialised economies, and indications are that there will not be an early reversal of these accommodative policies. Against this backdrop, the benign global inflation environment is expected to persist, and the risk of imported inflation is relatively low. While an appreciated rand exchange rate is a positive factor in the inflation outlook, an excessively strong exchange rate is a cause for concern from the perspective of overall macroeconomic balance. It is difficult to determine with precision an appropriate level of the exchange rate, but at recent levels the exchange rate may contribute to constraints in the recovery of export and import-competing sectors of the economy. Since the previous meeting of the MPC, the rand has appreciated from levels of around R7,60 against the US dollar to current levels of around R7,35. On a trade-weighted basis, the rand has appreciated by about 6 per cent since the previous meeting and by 3 per cent since the beginning of the year. The trade-weighted exchange rate was also influenced by the recent weakness in the euro and pound sterling against the US dollar. Since the previous meeting, the rand has appreciated by about 8 per cent and 11 per cent against the euro and pound sterling respectively. A number of factors continue to impact on the exchange rate of the rand. These include the sustained capital inflows into emerging markets in general in response to abnormally low interest rates in advanced economies, investor sentiment, and the recovery in commodity prices. The latter contributed to the narrowing of the deficit on the current account of the balance of payments in the final quarter of 2009 to 2,8 per cent of GDP. Other supply side or exogenous factors are not expected to impart a significant upside risk to the inflation forecast. International oil prices have remained relatively stable in the US$70-US$80 dollar range, and moderate increases over the forecast period have been incorporated into the inflation forecast. Nevertheless an increase in the order of 50 cents per litre has been assumed for April, about half of which is due to increased fuel levies announced in the budget.Domestic food prices, which for most of last year were one of the main sources of upside risk to the inflation outlook, have recently contributed favourably to the inflation outlook. In the past few weeks, maize prices have declined significantly, despite an upward trend in other food prices globally. While it is not clear at this stage to what extent these price declines will be passed on to the consumer, these developments should at least constrain food price increases for some time.Wage settlements continue to indicate some moderation but remain positive in real terms. The ratio of total compensation of employees to real GDP declined from 10,1 per cent in the year to the third quarter of 2009 to 9,2 per cent in the year to the fourth quarter. Nominal unit labour costs increased from 5,7 per cent in the third quarter to 8,8 per cent in the fourth quarter of 2009, but this figure was distorted by significant once-off adjustments to some public sector pay scales. Despite the reduced uncertainty associated with the electricity tariff increases, electricity and other administered price increases remain a threat to the inflation outlook. Of concern is the apparent trend towards greater reliance on high tariff increases to finance long term infrastructural expenditure projects. These increases are in effect relative price changes or implicit tax increases. However they contribute to the general inflation environment and remain a challenge for monetary policy.
4. Monetary policy stance
The assessment of the Monetary Policy Committee is that despite clear signs that the economy has emerged from the recession, the pace of recovery is expected to remain slow. The improved inflation environment has provided some space for an additional monetary stimulus to reinforce the sustainability of the upswing without jeopardising the achievement of the inflation target. The MPC has therefore decided to reduce the repurchase rate by 50 basis points to 6,5 per cent per annum with effect from 26 March 2010. The MPC will continue to assess developments, and will adjust the monetary policy stance when necessary in order to achieve the inflation target. Gill MarcusGOVERNOR
Tuesday, January 26, 2010
South African Reserve Bank - Jan 2010 Repo Rate
Monetary policy stance:
The MPC noted that inflation is likely to remain close to the upper end of the target range over the forecast period, and is of the view that the risks to this outlook are fairly evenly balanced. Electricity price increases pose the biggest upside risk, counteracted by the weak state of domestic demand. Against this background the MPC has decided to keep the repurchase rate unchanged at 7,0 per cent per annum.
The MPC noted that inflation is likely to remain close to the upper end of the target range over the forecast period, and is of the view that the risks to this outlook are fairly evenly balanced. Electricity price increases pose the biggest upside risk, counteracted by the weak state of domestic demand. Against this background the MPC has decided to keep the repurchase rate unchanged at 7,0 per cent per annum.
Tuesday, November 17, 2009
Issued by Gill Marcus, Governor of the South African Reserve Bank
1. Introduction:
There are signs that the domestic economy will continue on its recovery path but economic growth is expected to remain below potential for some time; and dependent to some extent on the pace of the global recovery, which still appears to be fragile and uneven across regions. Economic growth is also expected to be constrained by subdued domestic consumption expenditure. The domestic outlook for inflation remains favourable as a result of weak demand pressures and the main threat to the inflation outlook emanates from possible electricity price increases.
2. Recent developments in inflation
The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas declined from 6,4 per cent in August 2009 to 6,1 per cent in September. The single biggest contributor to the inflation outcome was the category of housing and utilities which accounted for 1,7 percentage points. This was mainly due to the electricity component which increased at a year-on-year rate of 29,1 per cent. Food price inflation continued to moderate, and at 4,9 per cent is now exerting downward pressure on overall inflation. Goods price inflation measured 4,9 per cent, compared with services price inflation of 7,8 per cent. Producer prices declined for the fifth successive month in September, with the headline producer price inflation measuring -3,7 per cent. Most categories in the index exhibited low or negative year-on-year rates of inflation, apart from electricity, gas and water, and tobacco products.
3. The outlook for inflation
The CPI inflation forecast by the South African Reserve Bank (the Bank) continues to indicate that inflation is likely to return to within the inflation target range, on a sustained basis, by the second quarter of 2010. There may however be temporary declines to within the target range before then. CPI inflation is expected to remain within the inflation target range until the end of the forecast period in the final quarter of 2011, when it is forecast to average 5,5 per cent. Given the current uncertainty related to Eskom’s tariff application to NERSA, the forecast does not make provision for the higher increases requested by Eskom, and electricity price increases of 25 per cent in 2010 and 2011 are assumed. The forecast of the Bank is in line with those of private sector analysts. According to the latest Reuters consensus forecast, inflation is expected to average 5,7 per cent in 2010 and 5,85 per cent in 2011.There are no major demand side pressures on inflation, and the assessment of the Committee is that there are no significant upside risks to the inflation outlook emanating from this source.Household consumption expenditure remains subdued. Real retail sales growth has been negative, but there is further evidence that motor vehicle sales may have reached their lower turning point. Although total vehicle sales in October were 12,5 per cent lower than a year ago, when the three months to October 2009 are compared with the preceding three months, an increase of 1,4 per cent was recorded. The recovery has been in passenger vehicle sales and exports. Commercial vehicle sales are still declining. Consumption expenditure is expected to remain subdued, despite the lower interest rate environment, as a result of tighter lending conditions by banks, high levels of consumer indebtedness, negative wealth effects or impaired household balance sheets, and higher levels of unemployment.Credit extension to the private sector reflects weak demand by households and the corporate sector, and tight lending conditions by banks in response to higher perceived risk and rising impaired advances. Twelve-month growth in banks’ total loans and advances declined to -0,2 per cent in September 2009. Growth in mortgage advances to the private sector declined further in September, measuring 4,8 per cent. The other main categories of loans and advances, namely instalment sale and leasing finance, credit card advances, bank overdrafts and general loans, all contracted.Consumption expenditure is also constrained by high debt levels and negative wealth effects, although asset values have recovered somewhat from their lows earlier in the year. The all-share index on the JSE Limited is currently about 50 per cent higher than the most recent lowest point in March of 2009.
House prices also appear to be recovering, with the various house price indices reflecting either small positive growth or moderate declines in October.
Labour market developments are also likely to constrain household consumption expenditure. According to the Quarterly Labour Force survey, approximately 800,000 jobs have been lost since the beginning of the fourth quarter of 2008.
The Quarterly Employment Statistics show a decline of over 200,000 formal sector jobs between the beginning of the fourth quarter of 2008 and the end of the second quarter of 2009. Domestic output appears to be recovering and the leading business cycle indicator of the Bank has continued its positive trend.
There are still some doubts about the speed of recovery, and the output gap remains relatively wide. Most forecasts suggest that positive growth will have resumed by the fourth quarter of 2009, but there is less unanimity about the third quarter outcome. The outlook is also not even across sectors. The monthly data suggests that the mining sector contracted further in the third quarter, but the manufacturing sector performance on a quarter-on-quarter basis was relatively robust. According to Statistics South Africa, the physical volume of mining production declined by 7,5 per cent in the three months to September compared with the previous three months. However, a more positive trend may be expected in the fourth quarter. The physical volume of manufacturing production increased by 2,6 per cent over the same period. This outcome is consistent with the Kagiso/BER Purchasing Managers Index, which although still reflecting a contraction in manufacturing, has rebounded significantly and the forward-looking indicators in the index are generally positive. There is a risk however that this recovery could be affected by low consumption expenditure growth. The outlook for the construction sector appears to be less favourable. The real value of building plans passed declined by 18,5 per cent on a year-on-year basis in August, while in the three months to August compared with the previous three months a decrease of 27,7 per cent was recorded. The FNB Civil Construction Index also declined significantly in the third quarter of 2009. Fiscal policy developments are not seen to be a threat to the inflation outlook. The revised budgeted deficit of 7,6 per cent of GDP announced in the MTBPS is to a significant extent due to lower tax revenues, a result of low economic growth, and is therefore part of the workings of the automatic stabilisers. The previous fiscal prudence has provided sufficient space for increased borrowing to fund the shortfall. The deficit is expected to narrow as growth gains momentum. No significant upside risks to the inflation outlook are expected from food prices. Food price inflation has declined to below 5 per cent, and this favourable trend is expected to continue. Consumer food prices tend to lag food price developments at the producer price level, and the latter have been either declining or rising marginally over the past months. In October, manufactured food prices declined at a year-on-year rate of 1,8 per cent, while agricultural product prices declined by 2,4 per cent. The current spot and future prices of agricultural commodities indicate that no significant upward pressures are expected in the near future.For the past year petrol prices have exerted downward pressure on inflation as a result of the appreciation of the rand and relatively low international product prices compared to the previous year. However, these favourable base effects are not expected to continue. Over the past few months the international oil prices have remained relatively stable but some account is taken in the forecast for possible increases in the international oil price should the global recovery accelerate. In November the domestic petrol price remained unchanged, and should current trends continue, a modest increase in the petrol price is possible in December.The rand has remained a positive factor in the inflation outlook, notwithstanding some volatility during the month. Since the previous MPC meeting, the rand has traded in a range between R7.30 and R7.90 against the US dollar. The rand’s movements have been influenced to a large extent by exogenous factors, in particular movements in the dollar, a resumption in global capital flows to emerging markets, and a recovery in commodity prices. Since the beginning of the year the rand has appreciated by 20 per cent on a trade-weighted basis.The global economic recovery has been led by the emerging Asian economies. However the turnaround in the advanced economies is less certain. While there are positive signs, the recent higher growth rates have been driven by a turn in the inventory cycle, and the continued weakness in consumption expenditure in the United States in particular, and rising levels of unemployment pose risks to the recovery. The nature and speed of exit strategies from the previous stimulus packages also remain a risk to the outlook. The global environment remains benign from an inflation perspective. Despite moderately higher commodity prices, there are no significant risks to the global inflation outlook.As in the past few meetings, the main risks to the inflation outlook are seen to emanate from electricity price increases and the possible second round effects thereof. In addition the trend of wage settlements continues to pose an upside risk to the inflation outlook.
4. Monetary policy stance
The Monetary Policy Committee, having reviewed the global and domestic economic and financial developments, has decided to maintain the current stance of monetary policy and to leave the repurchase rate unchanged at 7 per cent per annum.
1. Introduction:
There are signs that the domestic economy will continue on its recovery path but economic growth is expected to remain below potential for some time; and dependent to some extent on the pace of the global recovery, which still appears to be fragile and uneven across regions. Economic growth is also expected to be constrained by subdued domestic consumption expenditure. The domestic outlook for inflation remains favourable as a result of weak demand pressures and the main threat to the inflation outlook emanates from possible electricity price increases.
2. Recent developments in inflation
The year-on-year inflation rate as measured by the consumer price index (CPI) for all urban areas declined from 6,4 per cent in August 2009 to 6,1 per cent in September. The single biggest contributor to the inflation outcome was the category of housing and utilities which accounted for 1,7 percentage points. This was mainly due to the electricity component which increased at a year-on-year rate of 29,1 per cent. Food price inflation continued to moderate, and at 4,9 per cent is now exerting downward pressure on overall inflation. Goods price inflation measured 4,9 per cent, compared with services price inflation of 7,8 per cent. Producer prices declined for the fifth successive month in September, with the headline producer price inflation measuring -3,7 per cent. Most categories in the index exhibited low or negative year-on-year rates of inflation, apart from electricity, gas and water, and tobacco products.
3. The outlook for inflation
The CPI inflation forecast by the South African Reserve Bank (the Bank) continues to indicate that inflation is likely to return to within the inflation target range, on a sustained basis, by the second quarter of 2010. There may however be temporary declines to within the target range before then. CPI inflation is expected to remain within the inflation target range until the end of the forecast period in the final quarter of 2011, when it is forecast to average 5,5 per cent. Given the current uncertainty related to Eskom’s tariff application to NERSA, the forecast does not make provision for the higher increases requested by Eskom, and electricity price increases of 25 per cent in 2010 and 2011 are assumed. The forecast of the Bank is in line with those of private sector analysts. According to the latest Reuters consensus forecast, inflation is expected to average 5,7 per cent in 2010 and 5,85 per cent in 2011.There are no major demand side pressures on inflation, and the assessment of the Committee is that there are no significant upside risks to the inflation outlook emanating from this source.Household consumption expenditure remains subdued. Real retail sales growth has been negative, but there is further evidence that motor vehicle sales may have reached their lower turning point. Although total vehicle sales in October were 12,5 per cent lower than a year ago, when the three months to October 2009 are compared with the preceding three months, an increase of 1,4 per cent was recorded. The recovery has been in passenger vehicle sales and exports. Commercial vehicle sales are still declining. Consumption expenditure is expected to remain subdued, despite the lower interest rate environment, as a result of tighter lending conditions by banks, high levels of consumer indebtedness, negative wealth effects or impaired household balance sheets, and higher levels of unemployment.Credit extension to the private sector reflects weak demand by households and the corporate sector, and tight lending conditions by banks in response to higher perceived risk and rising impaired advances. Twelve-month growth in banks’ total loans and advances declined to -0,2 per cent in September 2009. Growth in mortgage advances to the private sector declined further in September, measuring 4,8 per cent. The other main categories of loans and advances, namely instalment sale and leasing finance, credit card advances, bank overdrafts and general loans, all contracted.Consumption expenditure is also constrained by high debt levels and negative wealth effects, although asset values have recovered somewhat from their lows earlier in the year. The all-share index on the JSE Limited is currently about 50 per cent higher than the most recent lowest point in March of 2009.
House prices also appear to be recovering, with the various house price indices reflecting either small positive growth or moderate declines in October.
Labour market developments are also likely to constrain household consumption expenditure. According to the Quarterly Labour Force survey, approximately 800,000 jobs have been lost since the beginning of the fourth quarter of 2008.
The Quarterly Employment Statistics show a decline of over 200,000 formal sector jobs between the beginning of the fourth quarter of 2008 and the end of the second quarter of 2009. Domestic output appears to be recovering and the leading business cycle indicator of the Bank has continued its positive trend.
There are still some doubts about the speed of recovery, and the output gap remains relatively wide. Most forecasts suggest that positive growth will have resumed by the fourth quarter of 2009, but there is less unanimity about the third quarter outcome. The outlook is also not even across sectors. The monthly data suggests that the mining sector contracted further in the third quarter, but the manufacturing sector performance on a quarter-on-quarter basis was relatively robust. According to Statistics South Africa, the physical volume of mining production declined by 7,5 per cent in the three months to September compared with the previous three months. However, a more positive trend may be expected in the fourth quarter. The physical volume of manufacturing production increased by 2,6 per cent over the same period. This outcome is consistent with the Kagiso/BER Purchasing Managers Index, which although still reflecting a contraction in manufacturing, has rebounded significantly and the forward-looking indicators in the index are generally positive. There is a risk however that this recovery could be affected by low consumption expenditure growth. The outlook for the construction sector appears to be less favourable. The real value of building plans passed declined by 18,5 per cent on a year-on-year basis in August, while in the three months to August compared with the previous three months a decrease of 27,7 per cent was recorded. The FNB Civil Construction Index also declined significantly in the third quarter of 2009. Fiscal policy developments are not seen to be a threat to the inflation outlook. The revised budgeted deficit of 7,6 per cent of GDP announced in the MTBPS is to a significant extent due to lower tax revenues, a result of low economic growth, and is therefore part of the workings of the automatic stabilisers. The previous fiscal prudence has provided sufficient space for increased borrowing to fund the shortfall. The deficit is expected to narrow as growth gains momentum. No significant upside risks to the inflation outlook are expected from food prices. Food price inflation has declined to below 5 per cent, and this favourable trend is expected to continue. Consumer food prices tend to lag food price developments at the producer price level, and the latter have been either declining or rising marginally over the past months. In October, manufactured food prices declined at a year-on-year rate of 1,8 per cent, while agricultural product prices declined by 2,4 per cent. The current spot and future prices of agricultural commodities indicate that no significant upward pressures are expected in the near future.For the past year petrol prices have exerted downward pressure on inflation as a result of the appreciation of the rand and relatively low international product prices compared to the previous year. However, these favourable base effects are not expected to continue. Over the past few months the international oil prices have remained relatively stable but some account is taken in the forecast for possible increases in the international oil price should the global recovery accelerate. In November the domestic petrol price remained unchanged, and should current trends continue, a modest increase in the petrol price is possible in December.The rand has remained a positive factor in the inflation outlook, notwithstanding some volatility during the month. Since the previous MPC meeting, the rand has traded in a range between R7.30 and R7.90 against the US dollar. The rand’s movements have been influenced to a large extent by exogenous factors, in particular movements in the dollar, a resumption in global capital flows to emerging markets, and a recovery in commodity prices. Since the beginning of the year the rand has appreciated by 20 per cent on a trade-weighted basis.The global economic recovery has been led by the emerging Asian economies. However the turnaround in the advanced economies is less certain. While there are positive signs, the recent higher growth rates have been driven by a turn in the inventory cycle, and the continued weakness in consumption expenditure in the United States in particular, and rising levels of unemployment pose risks to the recovery. The nature and speed of exit strategies from the previous stimulus packages also remain a risk to the outlook. The global environment remains benign from an inflation perspective. Despite moderately higher commodity prices, there are no significant risks to the global inflation outlook.As in the past few meetings, the main risks to the inflation outlook are seen to emanate from electricity price increases and the possible second round effects thereof. In addition the trend of wage settlements continues to pose an upside risk to the inflation outlook.
4. Monetary policy stance
The Monetary Policy Committee, having reviewed the global and domestic economic and financial developments, has decided to maintain the current stance of monetary policy and to leave the repurchase rate unchanged at 7 per cent per annum.
Thursday, October 22, 2009
South African Reserve Bank Repo Rate Decision 22/10/2009
Issued by Mr T T Mboweni, Governor of the South African Reserve Bank
1. Introduction
1.1 The prospects for inflation returning to within the inflation target range by the second quarter of 2010 remain promising. Domestic demand conditions continue to be subdued and currently do not pose a significant threat to the inflation outlook. Economic growth is expected to improve in the coming months, but is likely to remain below potential for some time. Domestic growth prospects are dependent to an extent on the global recovery which appears to be uneven across countries and regions. However the medium-term inflation outlook has been affected adversely by possible further significant adjustments to electricity tariffs.
2. Recent developments in inflation
2.1 There has been no publication of consumer price index (CPI) data since the previous meeting of the Monetary Policy Committee (MPC). The most recent data showed that the year-on-year inflation rate as measured by the CPI for all urban areas declined to 6,4 per cent in August, compared with 6,7 per cent in July. The main contributors to the inflation outcome were the categories of housing and utilities, and miscellaneous goods and services.
2.2 Producer prices declined at a year-on-year rate of 4,0 per cent in August, compared with a decline of 3,8 per cent in July. Food price inflation at the producer price level continues to signal dissipating pressures on food prices at the consumer price level. Agricultural product prices declined at a year-on-year rate of 2,0 per cent while manufactured food product prices increased at a rate of 0,1 per cent. Upside pressure on producer prices came from electricity prices which increased by 28,6 per cent.
3. The outlook for inflation
3.1 The CPI inflation forecast by the South African Reserve Bank staff continues to indicate that inflation is likely to return to within the inflation target range, on a sustained basis, by the second quarter of 2010. CPI inflation is then expected to stay within the inflation target range for the rest of the forecast period until the end of 2011. Compared with the previous forecast, the outlook showed a slight improvement for 2010 and 2011, mainly as a result of the changed assumption regarding the rand exchange rate. No adjustment has been made at this stage to the central forecast for possible further increases in electricity tariffs over and above those that are already assumed in the baseline forecast.
3.2 A number of domestic and global factors have contributed to the persistent downward pressure on inflation. The global economy shows continued signs of improvement, but the recovery is not uniform across regions. The pace of recovery of most of the Asian economies has been higher than that achieved in the main industrialised economies. The timing and speed of the withdrawal of the fiscal and monetary policy stimuli may have a bearing on the nature of the recovery in these economies. Global inflation is expected to be constrained by the relatively weak demand from the industrialised countries, although the US dollar movements may provide some upward pressure to commodity prices.
3.3 There are some positive indications that the rate of contraction of the domestic economy has declined and that the economy may emerge from the recession by the end of 2009. However, the mixed picture from the published data shows that the recovery is likely to be tentative, and the output gap is likely to remain positive for some time. The physical volume of manufacturing output declined at a year-on-year rate of 15,0 per cent in August, and by 2,8 per cent on a month-on-month basis. However, in the three months to August, compared with the previous three months, an increase of 0,8 per cent was recorded. The Kagiso/BER Purchasing Managers Index (PMI) increased markedly from 39,3 index points in August to 48,0 index points in September. The index shows that new sales orders have increased significantly, while manufacturers’ expectations of business conditions six months ahead improved to the highest level since early 2007.
3.4 Other sectoral developments indicate that the physical volume of total mining production increased in the three months to August but contracted on a month-on-month basis, whilst the real value of building plans passed continued to decline. The RMB/BER Business Confidence Indicator (BCI) declined to a ten-year low in the third quarter of 2009. The tentative nature of the domestic recovery is also reflected in the composite leading business cycle indicator compiled by the South African Reserve Bank which declined marginally in July, following three consecutive monthly increases.
3.5 Consumption expenditure by households also remains subdued, with real retail trade sales declining at a year-on-year rate of 7,0 per cent in August. In the three months to August, there was a 1,0 per cent decline, compared with the previous three months. Wholesale trade sales also declined further in August. Total new vehicle sales are also well below their levels of a year ago. However there are indications that the negative trend may have reached its lower turning point with zero or slightly positive rates of change being recorded on a month-on-month and quarter-on-quarter basis. The FNB/BER consumer confidence index declined in the third quarter of 2009 to a relatively neutral confidence level.3.6 Credit extension to the private sector continued to reflect both the weak household consumption expenditure and the prevailing tighter credit criteria. The Ernst and Young financial services index indicates that credit standards applied by retail banks to loan applications continued to tighten in the third quarter of 2009 but at significantly lower levels. Twelve-month growth in banks’ total loans and advances declined to 0,8 per cent in August 2009. Mortgage advances increased by 5,6 per cent in August, while instalment sale credit and leasing finance contracted by 4,2 per cent. Negative year-on-year growth rates were also recorded in credit card advances, bank overdrafts and general loans.3.7 There has been some recovery in asset prices in recent months, but wealth effects do not appear to be posing an immediate threat to the inflation outlook. Domestic equity prices have increased markedly since March, but are still significantly below the levels reached in May 2008. The various house price indices indicate a moderation in the rate of decline in house prices.
3.8 The exchange rate of the rand continues to provide downside pressure on inflation and is currently trading at levels against the US dollar similar to those prevailing at the time of the previous MPC meeting. During the past month the rand traded in a range of around R7,20 and R7,79 against the US dollar. The exchange rate of the rand has appreciated by 28 per cent against the US dollar since the beginning of 2009 and by 20 per cent on a trade-weighted basis.
3.9 The international oil price has increased in the past week but does not pose an immediate threat to the inflation outlook. Having averaged around US$70 per barrel for a number of weeks, the price of North Sea Brent crude oil increased to current levels of around US$76 per barrel, mainly as a result of the weaker US dollar and improved global growth prospects. In October, the domestic price of 95 octane petrol was reduced by 40 cents per litre as a result of both lower product prices and an appreciated rand exchange rate.
3.10 The main risks to the inflation outlook emanate from cost pressures in the economy. The trend of wage settlements still poses an upside risk to the inflation outlook. However there appears to be some evidence that nominal wage increases are moderating, although increases have generally been above the inflation rate. According to Andrew Levy Employment Publications, the average level of wage settlements amounted to 9,4 per cent in the first nine months of 2009 compared with 9,6 per cent in the corresponding period of 2008. These increases are consistent with the Quarterly Employment Survey (QES) of Statistics South Africa, which reported that growth in average nominal remuneration per worker in the formal non-agricultural sector of the economy moderated from 11,5 per cent in the first quarter of 2009 to 8,7 per cent in the second quarter. Unit labour cost increases declined from 11,3 per cent in the first quarter to 9,3 per cent in the second quarter.3.11 The substantial electricity tariff increases requested by Eskom are seen to be the main longer-term threat to the inflation outlook. Eskom has requested a trebling of the current electricity tariffs over the next three years, and the National Energy Regulator of South Africa (NERSA) is expected to make a decision in February 2010.
4. Monetary policy stance
4.1 The Monetary Policy Committee is of the view that overall the risks to the inflation outlook have not changed markedly since the previous meeting. Accordingly the Monetary Policy Committee has decided to leave the repurchase rate unchanged at 7,0 per cent per annum. The MPC will continue to monitor economic and financial developments and will not hesitate to adjust the monetary policy stance should the risks to the inflation outlook change materially.
1. Introduction
1.1 The prospects for inflation returning to within the inflation target range by the second quarter of 2010 remain promising. Domestic demand conditions continue to be subdued and currently do not pose a significant threat to the inflation outlook. Economic growth is expected to improve in the coming months, but is likely to remain below potential for some time. Domestic growth prospects are dependent to an extent on the global recovery which appears to be uneven across countries and regions. However the medium-term inflation outlook has been affected adversely by possible further significant adjustments to electricity tariffs.
2. Recent developments in inflation
2.1 There has been no publication of consumer price index (CPI) data since the previous meeting of the Monetary Policy Committee (MPC). The most recent data showed that the year-on-year inflation rate as measured by the CPI for all urban areas declined to 6,4 per cent in August, compared with 6,7 per cent in July. The main contributors to the inflation outcome were the categories of housing and utilities, and miscellaneous goods and services.
2.2 Producer prices declined at a year-on-year rate of 4,0 per cent in August, compared with a decline of 3,8 per cent in July. Food price inflation at the producer price level continues to signal dissipating pressures on food prices at the consumer price level. Agricultural product prices declined at a year-on-year rate of 2,0 per cent while manufactured food product prices increased at a rate of 0,1 per cent. Upside pressure on producer prices came from electricity prices which increased by 28,6 per cent.
3. The outlook for inflation
3.1 The CPI inflation forecast by the South African Reserve Bank staff continues to indicate that inflation is likely to return to within the inflation target range, on a sustained basis, by the second quarter of 2010. CPI inflation is then expected to stay within the inflation target range for the rest of the forecast period until the end of 2011. Compared with the previous forecast, the outlook showed a slight improvement for 2010 and 2011, mainly as a result of the changed assumption regarding the rand exchange rate. No adjustment has been made at this stage to the central forecast for possible further increases in electricity tariffs over and above those that are already assumed in the baseline forecast.
3.2 A number of domestic and global factors have contributed to the persistent downward pressure on inflation. The global economy shows continued signs of improvement, but the recovery is not uniform across regions. The pace of recovery of most of the Asian economies has been higher than that achieved in the main industrialised economies. The timing and speed of the withdrawal of the fiscal and monetary policy stimuli may have a bearing on the nature of the recovery in these economies. Global inflation is expected to be constrained by the relatively weak demand from the industrialised countries, although the US dollar movements may provide some upward pressure to commodity prices.
3.3 There are some positive indications that the rate of contraction of the domestic economy has declined and that the economy may emerge from the recession by the end of 2009. However, the mixed picture from the published data shows that the recovery is likely to be tentative, and the output gap is likely to remain positive for some time. The physical volume of manufacturing output declined at a year-on-year rate of 15,0 per cent in August, and by 2,8 per cent on a month-on-month basis. However, in the three months to August, compared with the previous three months, an increase of 0,8 per cent was recorded. The Kagiso/BER Purchasing Managers Index (PMI) increased markedly from 39,3 index points in August to 48,0 index points in September. The index shows that new sales orders have increased significantly, while manufacturers’ expectations of business conditions six months ahead improved to the highest level since early 2007.
3.4 Other sectoral developments indicate that the physical volume of total mining production increased in the three months to August but contracted on a month-on-month basis, whilst the real value of building plans passed continued to decline. The RMB/BER Business Confidence Indicator (BCI) declined to a ten-year low in the third quarter of 2009. The tentative nature of the domestic recovery is also reflected in the composite leading business cycle indicator compiled by the South African Reserve Bank which declined marginally in July, following three consecutive monthly increases.
3.5 Consumption expenditure by households also remains subdued, with real retail trade sales declining at a year-on-year rate of 7,0 per cent in August. In the three months to August, there was a 1,0 per cent decline, compared with the previous three months. Wholesale trade sales also declined further in August. Total new vehicle sales are also well below their levels of a year ago. However there are indications that the negative trend may have reached its lower turning point with zero or slightly positive rates of change being recorded on a month-on-month and quarter-on-quarter basis. The FNB/BER consumer confidence index declined in the third quarter of 2009 to a relatively neutral confidence level.3.6 Credit extension to the private sector continued to reflect both the weak household consumption expenditure and the prevailing tighter credit criteria. The Ernst and Young financial services index indicates that credit standards applied by retail banks to loan applications continued to tighten in the third quarter of 2009 but at significantly lower levels. Twelve-month growth in banks’ total loans and advances declined to 0,8 per cent in August 2009. Mortgage advances increased by 5,6 per cent in August, while instalment sale credit and leasing finance contracted by 4,2 per cent. Negative year-on-year growth rates were also recorded in credit card advances, bank overdrafts and general loans.3.7 There has been some recovery in asset prices in recent months, but wealth effects do not appear to be posing an immediate threat to the inflation outlook. Domestic equity prices have increased markedly since March, but are still significantly below the levels reached in May 2008. The various house price indices indicate a moderation in the rate of decline in house prices.
3.8 The exchange rate of the rand continues to provide downside pressure on inflation and is currently trading at levels against the US dollar similar to those prevailing at the time of the previous MPC meeting. During the past month the rand traded in a range of around R7,20 and R7,79 against the US dollar. The exchange rate of the rand has appreciated by 28 per cent against the US dollar since the beginning of 2009 and by 20 per cent on a trade-weighted basis.
3.9 The international oil price has increased in the past week but does not pose an immediate threat to the inflation outlook. Having averaged around US$70 per barrel for a number of weeks, the price of North Sea Brent crude oil increased to current levels of around US$76 per barrel, mainly as a result of the weaker US dollar and improved global growth prospects. In October, the domestic price of 95 octane petrol was reduced by 40 cents per litre as a result of both lower product prices and an appreciated rand exchange rate.
3.10 The main risks to the inflation outlook emanate from cost pressures in the economy. The trend of wage settlements still poses an upside risk to the inflation outlook. However there appears to be some evidence that nominal wage increases are moderating, although increases have generally been above the inflation rate. According to Andrew Levy Employment Publications, the average level of wage settlements amounted to 9,4 per cent in the first nine months of 2009 compared with 9,6 per cent in the corresponding period of 2008. These increases are consistent with the Quarterly Employment Survey (QES) of Statistics South Africa, which reported that growth in average nominal remuneration per worker in the formal non-agricultural sector of the economy moderated from 11,5 per cent in the first quarter of 2009 to 8,7 per cent in the second quarter. Unit labour cost increases declined from 11,3 per cent in the first quarter to 9,3 per cent in the second quarter.3.11 The substantial electricity tariff increases requested by Eskom are seen to be the main longer-term threat to the inflation outlook. Eskom has requested a trebling of the current electricity tariffs over the next three years, and the National Energy Regulator of South Africa (NERSA) is expected to make a decision in February 2010.
4. Monetary policy stance
4.1 The Monetary Policy Committee is of the view that overall the risks to the inflation outlook have not changed markedly since the previous meeting. Accordingly the Monetary Policy Committee has decided to leave the repurchase rate unchanged at 7,0 per cent per annum. The MPC will continue to monitor economic and financial developments and will not hesitate to adjust the monetary policy stance should the risks to the inflation outlook change materially.
Tuesday, September 22, 2009
South African Repo Rate 22/09/2009
The South African Reserve Bank Commitee has just announced the expected decision to leave the Repo unchanged at 7%
Thursday, June 25, 2009
SA Reserve Bank Fails To Act Once Again
The SARB disapointed many economists and SA citizens by failing to drop interest rates today. There was an expectation that the SARB would take aggressive action by cutting the repo rate by at least 0,5 basis points. Especially as so many jobs are on the line, during the first quater '09 it estimated that the reccission cost over 180 000 jobs alone. Unions have also preasured the goverment to cut interest rates but this seems to have fallen on deaf ears.
Thursday, May 28, 2009
Reserve Bank Cuts Repo Rate
The S.A.R.B cut its repo rate by 100 basis points to 7.5 percent today, in an effort to try stimulate the economy. Which is now (in case we hadn't noticed) officially in recession. The first recession in 17 years!
This 100 basis point reduction adds to 350 basis points in cuts since December 2008 and takes the repo rate to its lowest level in nearly 3 years! This brings the prime lending rate down to 11%.
The rate cut comes after data on Tuesday showed GDP shrank by 6.4 percent in the first quarter - the biggest fall since 1984 and after a 1.8 percent contraction in Q4 2008 - plunging the economy into recession as a global downturn hits manufacturing and mining.
Perhaps we wouldn't be in this position if the government took a more pro active approach in December 2008 when it could easily taken drastic steps by a more aggressive rate cut.
This 100 basis point reduction adds to 350 basis points in cuts since December 2008 and takes the repo rate to its lowest level in nearly 3 years! This brings the prime lending rate down to 11%.
The rate cut comes after data on Tuesday showed GDP shrank by 6.4 percent in the first quarter - the biggest fall since 1984 and after a 1.8 percent contraction in Q4 2008 - plunging the economy into recession as a global downturn hits manufacturing and mining.
Perhaps we wouldn't be in this position if the government took a more pro active approach in December 2008 when it could easily taken drastic steps by a more aggressive rate cut.
Thursday, April 30, 2009
Drop 100 basis points in the repo rate!
The South African Reserve Bank's monetary policy committee (MPC) has just cut the key repo rate by 100 basis points (1%), bringing it down to 8.5%, effectively dropping the prime lending rate to 12%, with effect from May 4.
Some economists were expecting the MPC to drop the rate by 150 basis points, but as usual they choose to be conservative.
Some economists were expecting the MPC to drop the rate by 150 basis points, but as usual they choose to be conservative.
Tuesday, March 24, 2009
Rates Cut by an expected 1 %
Bringing the interest rate to 13%.
However a 13% interest rate is ridiculous, and it should be cut even further to try stop the deepening recession taking hold of the SA Economy.
The longer the Reserve Bank delays this process, the greater the growth sacrifice and the wider the output gap will become, accompanied by employment losses.
The Reserve Bank thinks it knows best as it holds the entire economy at ransom, even making sarcastic remarks to the public in their statement.
However a 13% interest rate is ridiculous, and it should be cut even further to try stop the deepening recession taking hold of the SA Economy.
The longer the Reserve Bank delays this process, the greater the growth sacrifice and the wider the output gap will become, accompanied by employment losses.
The Reserve Bank thinks it knows best as it holds the entire economy at ransom, even making sarcastic remarks to the public in their statement.
Wednesday, March 18, 2009
Reserve Bank Announces Early Monetary Policy Committee (MPC) Meeting
The Reserve Bank has just announced an early MPC meeting. Most annalists expect an announcement of a full 100 basis points or 1% rate cut of the repo rate.
This expected rate cut is way over due! A meaningful rate cut should have happened in December 08, however our reserve bank minister decided to go "against grain" and cut it only by 50 basis points. This foolish decision has contributed to state of the SA economy which is now deep into the recession and cost many South Africans to loose their jobs.
The meeting will take place on March 23-24
This expected rate cut is way over due! A meaningful rate cut should have happened in December 08, however our reserve bank minister decided to go "against grain" and cut it only by 50 basis points. This foolish decision has contributed to state of the SA economy which is now deep into the recession and cost many South Africans to loose their jobs.
The meeting will take place on March 23-24
Thursday, February 5, 2009
100 basis point cut in the repo rate rate today...
The South African Reserve Bank Monetary Policy Committee decided to reduce the repo rate by 100 basis points to 10.5%, in line with consensus and expectations. Consumers should now start feeling some relief with 1,5% drop in interest rates since Dec 2008.
Thursday, December 11, 2008
Reserve Bank Minister Disapoints...
Yesterday's rate cut of 1/2 a basis point is a big disapointment!
I feel the reserve bank should have been aggressive and lowered it by a full basis point.
I don't think 1/2 a basis point will enough to pull our economy out of trouble in 2009.
I feel the reserve bank should have been aggressive and lowered it by a full basis point.
I don't think 1/2 a basis point will enough to pull our economy out of trouble in 2009.
Sunday, November 16, 2008
Expect Interest Rate Cut in December...
With the inflation gap about to start closing rapidly (let’s not argue too strenuously as to when we will re-enter the target as nobody really knows, but it may be sooner rather than later), and external risks diminishing daily (though keep a sense of proportion) even as the output gap is steadily deteriorating, it doesn’t require rocket science to see where this may be leading. Soon, too, by all appearances.
Expect a series of interest rate cuts, starting soon. Along with a more accommodative fiscal stance, this may assist in keeping the looming recession next year mild, meaning shallow and short, despite an increasingly intimidating global recessionary backdrop.
Politically, that would be extremely good timing, too.
Expect a series of interest rate cuts, starting soon. Along with a more accommodative fiscal stance, this may assist in keeping the looming recession next year mild, meaning shallow and short, despite an increasingly intimidating global recessionary backdrop.
Politically, that would be extremely good timing, too.
Subscribe to:
Posts (Atom)