Bloomberg News

South Africa Central Bank Keeps Key Lending Rate Unchanged

March 29, 2012

South Africa’s central bank kept borrowing costs unchanged for a record 16 months after inflation slowed in February, easing concern that price pressures may be spreading in the continent’s largest economy.

The benchmark rate was left at 5.5 percent, Governor Gill Marcus told reporters today in Pretoria, the capital. That was in line with the estimate of all 18 economists surveyed by Bloomberg.

The Reserve Bank has kept the repurchase rate at the lowest level in more than 30 years, since November 2010, to support the economy’s recovery as the debt crisis in Europe worsened. An unexpected drop in last month’s inflation rate to just above the 3 percent to 6 percent target may have given the bank room to postpone raising interest rates.

“They are still more worried about growth” than inflation, Carmen Nel, an economist at Rand Merchant Bank, said by phone from Johannesburg after the decision. “The tone was slightly less hawkish than in January.”

The rand extended its decline after the rate announcement, reaching 7.7702 per dollar at 4:31 p.m from 7.729 before Marcus began speaking. The yield on the benchmark rand debt due in 2015 fell 2 basis points, or 0.02 percentage point, to 6.8 percent.

CPI Forecast

Inflation, which slowed to 6.1 percent in February, will probably peak at 6.5 percent in the second quarter and average 6.1 percent in the final three months of the year, Marcus said. The inflation rate is forecast by the bank to reach 5.2 percent by the end of 2013 and average 5.6 percent in the first quarter next year, she said.

Investors are paring bets the central bank will raise rates this year. The yield on the forward-rate agreement contract due in nine months dropped 13 basis points, or 0.13 percentage point, to 5.95 percent as of 3:41 p.m. in Johannesburg since the February inflation data was released on March 22.

Prior to the February inflation figure, Marcus said price pressures may be becoming “more generalized” as demand in the economy picks up, adding to expectations the bank may be preparing to raise interest rates. Spending in the economy rose an annualized 5.1 percent in the fourth quarter, the fastest pace in more than a year, the Reserve Bank said on March 19.

Cost-Push Inflation

Marcus said today inflation is still being driven primarily by “cost-push” factors, such as rising food and energy prices. Eskom Holdings SOC Ltd., South Africa’s power utility, will raise average electricity prices 16 percent starting in April, less than the proposed 25.9 percent.

“The MPC is of the view that while the main pressures on inflation are of a cost-push nature, there is some evidence that these pressures may be becoming more broad-based,” Marcus said. “However these developments are in line with our previous forecasts and are expected to remain contained by the relatively subdued state of the domestic economy.”

The Reserve Bank raised its forecast for economic growth to 3 percent this year from a previous estimate of 2.8 percent, while forecasting the economy to expand 3.9 percent in 2013, up from an earlier prediction of 3.8 percent.

The decision “leaves us feeling comfortable with our view that the Reserve Bank will leave the repo rate unchanged until well into 2013,” Adenaan Hardien, an economist at Cape Town- based Cadiz Asset Management, said in phone interview. “Core inflation remains quite low. It remains relatively contained.”

Bertus van Zyl attended his last MPC meeting this week and will retire, Marcus said, bringing the number of members on the committee down to seven.

“He is very much part of the tradition of the bank,” Razia Khan, head of African economic research at Standard Chartered Plc in London, said in a phone interview today. “He would have been one of the MPC members more likely to raise rates pre-emptively in advance of there being an inflation shock and that’s because of all the experience he’s had of the numerous rand shocks over the years.”

To contact the reporters on this story: Andres R. Martinez in Johannesburg at; Mike Cohen in Cape Town at

To contact the editor responsible for this story: Andrew J. Barden at

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