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Repo rate remains unchanged at 7%

Business Report
Johannesburg – The South African Reserve Bank (SARB) on Thursday left its benchmark repo rate unchanged at seven percent, a sixth time in a row due to positive growth outlook in advanced economies which contributed to more favourable environment for emerging markets generally.

Reserve Bank governor, Lesetja Kganyago, announced that five members of the Monetary Policy Committee (MPC) preferred an unchanged stance while one member preferred a 25 basis point reduction.

In the end, the MPC kept the repurchase rate – the interest rate at which the Reserve Bank lends money to commercial banks – unchanged at seven percent, just as it did in January this year, as well as in November, September, July and May last year.

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Picture: Denis Farrell/AP

The prime lending rate, the figure charged by banks to customers, will also remain unchanged at 10.5 percent. Kgyanyago said the MPC sees no evidence of significant demand pressures impacting on inflation though the growth outlook remains disappointing.

He said the MPC was concerned that increased political uncertainty could impact negatively on private sector investment and household consumption expenditure, and further undermine employment growth.

International oil prices have declined following increased oil inventories and weak compliance with the OPEC-brokered deal to restrict output, and an increase in shale gas production in the United States.

Kganyago said the domestic growth outlook remains weak following the negative growth recorded in the fourth quarter of 2016, and that the constrained growth outlook does not bode well for employment creation in the economy.

The Reserve Bank's forecast for GDP growth has been revised up by 0.1 percentage points in both 2017 and 2018, to 1.2 percent and 1.7 percent, with growth of 2.0 percent forecast for 2019. "The MPC is of the view that we may have reached the end of the tightening cycle," Kganyago said.

"However the Committee would like to see a more sustained improvement in the inflation outlook before reducing rates. This assessment may however change if the inflation outlook and the risks to the outlook deteriorate."

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