Reserve Bank keeps rates unchanged

The Reserve Bank kept its benchmark repo rate unchanged, despite the deteriorating outlook for domestic economic growth.

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Pretoria - South Africa's Reserve Bank kept its benchmark repo rate unchanged on Wednesday, saying a weakening economy meant its plan to increase borrowing costs to tackle high inflation would have to be deferred.

 A key uncertainty for the bank's monetary policy committee (MPC) was the extent to which the prospect of interest rates rising in the United States was already priced into the rand exchange rate.

That dilemma was compounded by "the (domestic) combination of sharply slowing growth and rising inflation," bank Governor Lesetja Kganyago told a news conference after it cut its 2015 economic growth forecast to 1.5 percent from 2.0 percent.

South Africa's resource-rich economy has nosedived this year, hit by sharp falls in commodity prices, chronically high unemployment and a broad-based decline in emerging markets.

It contracted 1.3 percent in the second quarter, while the rand currency has shed nearly 20 percent against the dollar this year.

The bank's decision to keep the repo rate steady at 6 percent followed a 25 basis point increase in July, the first change in a year.

While Wednesday's decision not to hike had been unanimous, the bank's seven-member MPC still aimed to gradually increase rates, Kganyago said.

"The committee ... will not hesitate to act appropriately should the risks to the inflation outlook deteriorate materially," he said.

The rand, which has fallen as investors dump emerging markets in anticipation of a hike in U.S. rates, remained an upside risk to the inflation outlook.

The local currency extended losses after the rate announcement, and was at 13.7450/dollar by 1442 GMT, compared to 13.6940 just before.

A Reuters poll this week showed 28 of 31 economists had expected the repo rate to remain unchanged. Two forecast a 25 basis point hike and a third predicted 50 points.

"We had expected a hike... While a rate hike would certainly be painful, we doubt that things will be much easier in a few months' time," Capital Economics analyst for Africa John Ashbourne said.

Ratings agency Moody's said on Wednesday it expected South Africa to avoid a recession this year.

** This story has been updated

 

Reuters