SA REPO rate unchanged at seven percent

South Africa's Monetary Policy Committee left the REPO rate unchanged at seven percent at its meeting in Pretoria yesterday, according to a statement by the SA Reserve Band governor Tito Mboweni.

The statement presented by the governor was, according to economists Efficient Research (EF), very positive and left the door open for a possible interest rate cut during its next meeting in October.

The highlights of the MPC statement, according to EF, were:

The targeted inflation basket, CPIX, has remained within the targeted band for 22 consecutive months and during the past three months the rate of increase were below the consensus forecast.

Administered prices excluding petrol prices remains above the six percent level since June 2004.

The SARB expect CPIX to increase in coming months reaching a peak of 5,5 percent in the first quarter of 2006.

Changes since the previous MPC were our sovereign rating upgrade by S&P (now BBB+), moderate appreciation of the exchange rate, while the dollar depreciated from US$1,19 to US$1,24.

Unit labour cost has increased by 5,9% during the first quarter of 2005 compared to wage increases of six percent over the same period.

The fiscal policy continues to support monetary policy and current expectations are that the deficit should not exceed the planned deficit announced in the budget.

The main threat to inflation remains the high oil price, while these price increases have been recorded in the inflation data, the second round effects are as yet unknown

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