The South African Reserve Bank (SARB) was not ready for another surprise move like last July and kept the interest rates on the same level. The repo rate, the interest rate at which the Reserve Bank lends money to commercial banks, remains on its 40-year low of 5%, which translates to a prime lending rate of 8,5% _per annum_. The Monetary Policy Committee (MPC) continues to face conflicting policy choices relating to rising inflation and slowing growth. Despite the upward trend in core inflation, there are no strong signs of excess demand pressures and the forecast for headline inflation suggests that the breach of the target may be short-lived. Inflation is now expected to average 0.1% and 0.3 percentage points higher in 2013 and 2014, at 5.9% and 5.5% respectively, while the forecast for 2015 has been raised from 5.0% to 5.2%.
The Bank’s growth forecast for 2013 has again been revised down from 2.4% to 2.0% and from 3.5% and 3.3% for 2014. Growth is expected to accelerate to 3.6% in 2015, compared with 3.8% previously. The Reserve Bank last month admitted for the first time in nearly a year that it had considered a cut to try to boost weakening growth, but in the end refrained from such a bold move. The Reserve Bank is likely to keep lending rates at current four-decade lows well into next year, as it balances inflation risks from a weaker currency against sluggish economic growth. Only new signals from the labour front (employment, strikes) and a stronger Rand will tempt SARB to change the current course of “passive resistance”.