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S. Africa keeps repo rate unchanged at 6 pct

Xinhua, September 24, 2015 Adjust font size:

The South African Reserve Bank (SARB) announced on Wednesday that the repo rate will remain unchanged at 6 percent, and prime lending rate at 9.5 percent.

The announcement was made by SARB Governor Lesetja Kganyago in Pretoria.

The repo rate is the rate at which the central bank lends money to banks.

The SARB could not hike the repo rate in an attempt to tighten its monetary policy as inflation threatens to exceed the bank's target, said the governor.

"The rand remains a significant risk factor to the inflation outlook ... given the vulnerability of the rand and long bond yields to possible U.S. interest rate increases as well as a deterioration in South Africa's terms of trade," he said.

South Africa consumer inflation for August slows to 4.6 percent, according to the data released by Statistics South Africa on Wednesday.

"Inflation risks from the drought conditions have been seen coming through in data released today," he added.

Kganyongo also said he was concerned about the electricity prices which he envisaged would come into effect probably next year.

Although South Africa suffered a weak economic growth, a recession was unlikely, Kganyago said.

A statement issued by the SARB's monetary policy committee said an economic contraction was unlikely in the third quarter following a 1.3 percent decline in the second quarter.

Kganyago said the Reserve Bank's Monetary Policy Committee (MPC) will continue watching the stubborn inflation and normalise the interest rate.

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

Jacques du Toit, a senior economist with Absa Bank, told Xinhua that the MPC would hike the interest rates in November" to contain mounting inflationary pressures from a depreciating rand exchange rate. Currently debt repayments will remain unchanged, which will be a relief to indebted consumers."

"Banks will continue to monitor economic and consumer-related trends in decisions regarding risk appetite and lending criteria," he added.

The U.S. Federal Reserve last week gave emerging markets a breather by keeping the repo rate unchanged amid concerns about a weak world economy, but left open the possibility of tightening policy later this year.

"Still, economists predict the SARB to hike the repo rate by 25 basis points at its last meeting of the year in November to 6.25 percent, a measure that is likely to harm rate-sensitive parts of the economy," said Chirs Hart, Chief Strategist at Investment Solutions.

"The world stocks were jittery, but given the fact the Fed also did not hike its repo rate, it gives us room to breathe," Denford Maguire, an economist with Kunzi Investments, said.

"Thanks to the low prices in oil, inflation in South Africa has also improved in the last months," he said. Endit