Thursday, September 20, 2012

South Africa holds rate, says cut not appropriate right now

    The central bank of South Africa kept its repurchase rate unchanged at 5.0 percent, saying a further cut in its accommodative stance was not appropriate "at this stage" despite the challenging global and domestic conditions. The bank trimmed its 2012 and 2013 growth forecasts.
   The South African Reserve Bank (SARB), which last month cut its benchmark rate by 50 basis points to boost the economy, said the risk to its inflation forecast was balanced.
    Since the bank's last meeting in July, the "global growth outlook has weakened further," but near-term risks to financial markets from the euro zone debt crises "seem to have subsided somewhat."
    Nevertheless, the bank said "the continued risk of a possible Greek exit and its contagion effects are likely to hang over the markets for some time. The fundamental problems of the eurozone remain, and low or negative growth is likely to persist going forward."

    South Africa's economy expanded by 3.2 percent in the second quarter from the same quarter last year, but the bank said this was distorted due to the strong contribution from the mining sector, which recovered from a deep contraction in the first quarter. Real output growth excluding the mining sector only rose 1.7 percent, with manufacturing contracting.

    Recent issues in the mining sector "have the potential to undermine the already fragile private sector investment despite the accommodative macroeconomic policy environment."
    SARB said risks to the economy remain on the downside and it now expects real Gross Domestic Product to expand by average 2.6 percent in 2012, down from a previous forecast of 2.7 percent, and by 3.4 percent in 2013, down from 3.8 percent.
    Inflation in South Africa rose slightly to 5.0 percent in August from 4.9 percent in July, and the central bank said inflation is expected to remain relatively stable at that rate over its forecast period.
    For the final quarter of 2012, inflation is forecast at 5.3 percent, 5.2 percent in 2013 and 5.0 percent in 2014 with near-term rises due to higher petrol and food prices.
    The central bank targets annual inflation in a range of 3 to 6 percent.

   www.CentralBankNews.info



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