Cape Town — Bowing to the "uncertain and volatile" world economic climate, South Africa's central bank today resisted pressure to increase interest rates to bring down inflation.
Tito Mboweni, governor of the South African Reserve Bank, said the bank's monetary policy committee had decided to leave the rate at which the bank lends money to commercial banks - the "repo" or repurchase rate - at 11 percent, the figure to which it had been increased in December.
This was in spite of the country's annual inflation rate rising to 8.6 percent in December. The bank has been increasing the repo rate regularly for the past 18 months in an attempt to wrestle inflation down to below six percent.
Mboweni said the bank's most recent forecast indicated that inflation was rising, and was expected to peak at an average of 8.5 percent in the first quarter of this year.
The prices of food and energy were the main threats, he said. South Africa is in the midst of what the government has described as a national electricity crisis and needs to invest massively in new power stations to overcome it.
The value of South Africa's currency, the rand, had depreciated by about seven percent in the past month, he added.
Nevertheless, there were developments which were likely to have a restraining influence on inflation. Household spending was being dampened and the amount of credit given had been moderated.
In addition, the fallout from the sub-prime crisis in the United States had prompted "a general downward revision to forecasts of global growth" which could have "spillover effects" on the South African economy.
Mboweni concluded that the repo rate would remain unchanged "in the light... of heightened economic uncertainties, both domestically and globally, and some evidence of moderation in domestic consumption expenditure."
