UPDATE: Repo rate remains unchanged

South Africa’s repo rate will remain unchanged at 5 percent, it was announced on Thursday.

Reserve Bank Governor Gill Marcus. Picture: AFP

JOHANNESBURG - South African Reserve Bank Governor Gill Marcus says the bank's Monetary Policy Committee on Thursday decided to keep interests on hold at five percent because there is a risk of increasing inflation.

She made the announcement in Pretoria.

"Further accommodation at this stage is constrained by the upside risks to the inflation outlook. The MPC has therefor decided to keep the repo rate unchanged at 5 percent per annum."

Marcus also said the bank expected the economy to grow at around 2.6 percent in 2013, from an earlier forecast of around 2.9 percent.

She said employers and workers needed to realise that the decisions they made would have knock-on effects on the economy and on how many people would be employed.

"The MPC remains concerned about the possibility of a wage-price spiral and its potential to exacerbate the high level of employment in the economy.

"Concerted action is needed on the part of all the parties involved. We need cohesion of policy and decision making to provide the necessary certainty for sustainable, economic growth."

Marcus said the bank was worried salaries may be rising more quickly than inflation.

Meanwhile, Nedbank's Chief Economist, Isaac Matshego, said the Reserve Bank had little space in which to move.

He also said it was clear Marcus was worried about high wages.

"These high-wage settlements are not sustainable, and we cannot keep on having these high-wage settlements without the requisite increase in productivity or investment in South Africa going up."

The prime interest rate will also remain unchanged at 8.5 percent.