Relief as repo remains at 11%

Reserve Bank Governor Tito Mboweni on Thursday said: “...the Monetary Policy Committee has decided that it is appropriate at this time to leave the repo rate unchanged at 11% per annum.”

This means that the prime interest rate, at which commercial banks lend money to clients, also remains stable at 14.5%.

Added to this, the governor said credit extensions to the private sector moderated further, while growth over 12 months in loans and advances extended to the private sector declined from 25.2% in September 2007 to 22.2% in December 2007.

June 2007 saw the implementation of the National Credit Act, which aims to protect consumers from reckless lenders and from spending beyond their means.

Throughout 2006 and 2007, Mboweni had warned South Africans to curb their credit spending for the sake of their financial well-being and the economy as a whole.

Continued credit spending over those two years was a major contributor to the MPC's streaks of consecutive rates hikes.

“The MPC remains committed to bringing inflation back to within the inflation target range,” said Mboweni referring to the target band of 3 to 6%.

Ordinary South Africans have been lamenting the upward spiraling costs of fuel and food, while business such as bakeries and lately milk distributors have attributed their price increases to transport costs.

The governor said consumer inflation continued its upward trend, measuring 8.6% in December 2007.

“The main drivers were again petrol and food. Petrol prices increased at a year-on-year rate of 23.8% in December, while food prices increased at a rate of 13.9%,” he said.

Showing the dramatic effect of these factors, Mboweni said excluding food and petrol, the CPIX inflation would have measured 5%.

“Food prices remain one of the main short-term risks to inflation which production price continue to indicate that sustained food price pressure can be expected in the coming months,” Mboweni explained.

Citing figures released by Stats SA earlier in the day, he said Production Price Inflation measured 10.3% in December compared to 9.1% in November 2007.

“Manufactured food inflation increased to 18.7% from 18.3% in November while agricultural products inflation declined to 24% from 26.8%,” explained Mboweni.

“Domestic petrol prices, on the other hand, remained unchanged in January and the current average under-recovery for this month in approximately 15% per litre.”

Despite the food and oil prices pushing up the inflation rate, the governor said the committee would not change the CPIX target band of 3 to 6% until further discussions have been made.

With the country currently experiencing a power supply crisis, Mboweni indicated that the threat posed to the inflation outlook by higher electricity prices remained.

“The precise increase that will be faced by households may be higher and will be known during the coming months,” he said, referring to the recent announcement by the National Energy Regulator approving Eskom's electricity tariff increases of 14.2% in July.

The governor said the global financial market instability had been reflected in the instability on the Johannesburg Stock Exchange.

“Since its peak in October 2007, the All-share index has fallen by approximately 16%.”

Article published courtesy of BuaNews