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SA leaves repo unchanged but says rates must go up at some point

Lesetja Kganyago said future increases would depend on a number of factors.

FILE: Reserve Bank Governor Lesetja Kganyago and former governor Gill Marcus. Picture: Sapa.

JOHANNESBURG - Reserve Bank Governor Lesetja Kganyago has cited weakening oil prices and falling food price inflation as some of the main reasons for the decision to keep interest rates unchanged at 5.75 percent.

Kganyago earlier gave his first Monetary Policy Committee (MPC) report since taking over from Gill Marcus earlier this month.

"The general expectation in the market is that these lower prices could persist for some time although some of the advantages of lower international oil prices have been offset by some extent by a weaker rand exchange rate."

Kganyago said future increases would depend on domestic inflation expectations, the speed of interest rate rises in the United States and the state of the local economy.

He said the petrol price has gone down R1,17 since august with another 70 cents drop expected next month.

Kganyago said core inflation is forecast at around 5.3 percent for next year and should stabilise.

But he said the GDP outlook remains a concern

"The bank's focus for GDP growth for 2014 has declined marginally from 1.5 percent to 1.4 percent."

Kganyago said the bank will remain vigilant and continue to monitor volatile exchange rates and pressure from overseas markets but said inflation is balanced and therefore there is no reason to raise the repo rate.

He said household expenditure is in check and consumers can look forward to cheaper petrol and stable inflation rates over the next few months.

"The MPC does not see significant signs of excess demand pressures that are impacting on the inflation outlook and household consumption expenditure is expected to remain constrained."

He cautioned that the Eurozone remains bleak and the outlook for emerging markets remains mixed along with volatile oil prices.

He also said unemployment remains a problem with more than 25 million people still without work.

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