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South African Reserve Bank Holds Rate At 5.75%

James Boston
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South African Reserve Bank Holds Rate At 5.75%

The South African Reserve Bank (SARB) has shied away from a moderately expected hike in it’s base interest rate as it completes it’s last monetary policy meeting of the year. Barring any unforeseen emergencies the country’s key interest rate will end 2014 at 5.75% this is 75 basis points above where it began the year as monetary tightening proved necessary in order to curtail a rising inflation rate.

The SARB’s new Governor, Lesetja Kganyago, noted that the timing of further rate increases would be dependant on a number of factors including inflation, the health of the domestic economy and any developments regarding the US’s monetary policy. These factors, the first two at least, appear to be well in line with SARB expectations. Two consecutive months at 5.90% points to inflation stabilising below the 6% level following some concerningly high readings around the middle of the year, although further falls would be desirable in order to indicate a definitive trend it appears that the SARB’s early data is giving them some comfort in this regard.

The second factor, the health of the South African economy, is much more difficult to judge at this point in time. Recent significant pick ups in the industrial, manufacturing and mining sectors are suggesting that the country has shaken off much of the damage caused by labour unrest in these areas during much of the first half of this year. Being the primary engine of the South African economy means that improvements in the industrial sector bode well for future overall growth. Falling commodity prices however will not assist the path to recovery and South Africa has a task ahead of it to return to consistent growth following a rare contractionary quarter earlier this year and several ratings downgrades have served to strip away international confidence in the South African economy.

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