Rates announcement comes with warning

Sarb Governor Gill Marcus says rates are likely to rise with economic growth and inflation off target.

Reserve Bank Governor Gill Marcus. Picture: AFP.

JOHANNESBURG - The South African Reserve Bank (Sarb) on Thursday warned an interest rate hike is due in the near future.

This was revealed during the Monetary Policy Committee (MPC)'s repo rate announcement in Pretoria this afternoon.

Sarb Governor Gill Marcus announced the repo rate would remain on hold at 5,5 percent, while the prime lending rate would stay put at nine percent.

"The committee continues to hold the view that we are in a rising interest rate cycle and interest rates will have to be normalised in due course. We embarked on this process with our first move in January 2014."

Marcus says the bank has also adjusted its 2014 economic growth outlook to 2,1 percent from previous forecasts of 2,6 percent.

She says the economy should recover thereafter, but there are still risks.

"The forecast of 2015 remains unchanged at 3,1 percent and growth in 2016 is expected to average 3,4 percent," Marcus said.

"However, the risks to these forecasts are increasingly to the downside against the renewed possibility of electricity load-shedding amongst other factors."

At the same time, Marcus said the rand was also likely to remain vulnerable to changing perceptions about US monetary policy - a factor that helped drive the currency to five-year lows in January.

The rand has recovered substantially from those levels, hitting a year-high last week.

Meanwhile, with inflation hitting 6,1 percent in April, Sarb says it expects it to remain outside the bank's target range of 3-6 percent until at least the second quarter of 2015.

"Food prices remain a risk to the inflation outlook," says Marcus, "although the risk may have moderated somewhat following the sharp reversal in domestic maize prices in recent weeks."

Marcus also noted the damaging effects of the ongoing strike in the platinum sector.

Workers affiliated to the Association of Mineworkers and Construction Union (Amcu) have been on a wage strike for exactly four months - the longest work stoppage ever seen in South Africa.

Miners are demanding a basic salary of R12,500 a month.

Marcus said, "It is expected to begin to have a significant negative impact on exports, now that inventories are reaching low levels, and a further extension of the strike could impede the required current account adjustment process."