Repo rate remains unchanged

South Africa's Reserve Bank left the repo rate unchanged at 5% on Wednesday as expected, saying the inflation outlook had deteriorated, although risks to domestic economic growth were on the downside.

All 21 economists polled by Reuters last week saw the rate holding steady, with a large majority seeing rates unchanged for the rest of the year.

"Inflation is expected to breach temporarily the upper end of the target range in the third quarter of 2013, when it is expected to average 6.3%," Governor Gill Marcus told a news conference.

Below are comments from South African Reserve Bank Governor Gill Marcus at her latest decision on interest rates.

INFLATION

"Inflation is now expected to average 5.9 percent in 2013 and 5.3 percent in 2014, compared with the previous forecasts of 5.8 percent and 5.2 percent for these respective years."

"Inflation is expected to breach temporarily the upper end of the target range in the third quarter of 2013, when it is expected to average 6.3 percent, and then to moderate gradually to 5.2 percent in the final quarter of 2014."

"This deterioration is largely due to the depreciation of the rand and higher petrol prices, which more than offset the impact of the lower electricity price increases and a lower starting point."

"The exchange rate of the rand continues to pose the main risk to the inflation outlook."

"There are indications that the pressures on inflation emanating from food prices may be moderating."

"The MPC continues to assess the balance of risks to the inflation outlook to be on the upside, mainly due to the exchange rate and wage pressures."

GROWTH

"The moderate pace of recovery is expected to continue in 2013. The bank's forecast is for growth of 2.7 percent this year, marginally up from the previous forecast of 2.6 percent and 3.7 percent in 2014, compared with a previous forecast of 3.8 percent. The risks to these forecasts are assessed to be on the downside."

"Domestic growth prospects remain relatively subdued notwithstanding a better-than-expected fourth quarter GDP growth outcome and positive developments in the mining and manufacturing sectors in January."

"The economic growth outlook is more or less unchanged from the previous meeting of the MPC, and risks to the outlook remain on the downside. The unresolved labour disputes in the mining sector pose a significant risk to the exchange rate and to economic growth through their negative impact on export revenues, employment growth and investor perceptions of South Africa."

RAND

"The rand is likely to remain sensitive to both domestic and global developments."

"The exchange rate is expected to remain volatile and subject to overshooting, and further sustained depreciation would increase the upside risk to the inflation outlook."

However, she added that the depreciating exchange rate offered an opportunity for manufacturers to become more competitive, which would also require improved productivity.

WAGE SETTLEMENTS

"The trend in wage settlements remains an upside risk to the inflation outlook, although recent data is somewhat contradictory."

"The MPC remains concerned about the possible impact of excessively high wage increases on employment growth."

ON DECISION

"The MPC continues to assess the monetary policy stance to be appropriately accommodative given the persistence of the negative output gap.

"At the same time, further accommodation remains constrained by the upside risks to the inflation outlook. The MPC has therefore decided to keep the repurchase rate unchanged at 5.0 percent per annum. The Committee will continue to apply monetary policy consistent with its mandate of price stability within a flexible inflation targeting framework.

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