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Interest rates to increase slightly

The South African Reserve Bank has decided to push rates higher by 25 basis points.

The South African Reserve Bank board, with Governor Gill Marcus at centre. Picture: Supplied.

JOHANNESBURG - The repo rate has been increased by 0.25 percent to 5.75 percent, South African Reserve Bank (Sarb) Governor Gill Marcus announced on Thursday.

The repo rate will rise to 9.25 percent.

Marcus revealed the Monetary Policy Committee (MPC)'s decision at the Sarb headquarters in Pretoria this afternoon.

"The MPC has decided to continue on its gradual normalisation path and raise the repo rate effective from Friday 18 July," she said.

"We would like to reiterate that monetary policy should not be seen as the growth engine of the economy. The sources of the below par growth performance are largely outside the realms of monetary policy," she said, noting poor labour relations as a major concern.

Since the last announcement in May, she said, "The economic growth outlook has deteriorated,"

At the same time, she said the growth outlook for the US and Europe is poor.

The governor also noted that expected inflation rates in South Africa are higher than previously thought, with an expected 6.3 percent in 2014.

Further, she expressed increased concern over the strength of the local currency.

"The exchange rate of the rand continues to pose an upside risk," noting that is has depreciated when compared to most global currencies.

Marcus also explained that the residual damage of the platinum belt strike and other ongoing industrial action in the metal and automotive industries will continue to bear down on the economy.

She said both the mining and manufacturing sectors look set to maintain the decline they have been on this year.

Marcus says the trend in wage settlement agreements is likely to push inflation even higher.

"The MPC is concerned that recent wage settlements [such as in mining] could set a precedent for wage settlements more generally," she said, warning that this could push inflation and unemployment levels even higher.

On petrol, Marcus said she expected a further small increase in the price in August, largely based on the weak currency.